419(e) Welfare Benefit Plans
A 419(e) welfare benefit plan is a type of employer-sponsored employee welfare benefit plan. A 419(e) welfare benefit plan is a type of employer-sponsored employee welfare benefit plan. Companies may offer a 419(e) benefit plan with enticing benefits to retain valued employees and attract talented personnel; this helps to reduce recruitment and training costs. For example, if an employer provides a benefit plan that includes group term life insurance, they could add disability insurance to offer a range of personal insurance options. The 419(e) benefit plan can also keep contributions made for key employees separate from those of rank-and-file employees.
What Are 419(e) Welfare Benefit Plans?
A 419(e) welfare benefit plan is a type of employer-sponsored employee welfare benefit plan. 419(e) welfare benefit plans qualify under paragraph (e) of Section 419 of the Internal Revenue Code. They provide a range of benefits to employees, such as life, health, disability, long-term care, and post-retirement medical.
These plans can be either target contribution or target benefit in design and are intended to provide additional financial stability for employees during their retirement years. The downside of 419(e) welfare benefit plans is that they are complex and typically require an actuary to setup and implement.
How 419(e) Welfare Benefit Plans Work
A 419(e) plan allows employers to select the benefits they offer their employees. Employers can add new benefits to the plan which can be used to supplement existing benefits. For example, if an employer provides a benefit plan that includes group term life insurance, they could add disability insurance to offer a range of personal insurance options.
The assets in 419(e) benefit plans are usually held by an independent trustee and are exempt from seizure by any creditors the company may have.
The same company pays for all of the benefits of the plan and does not pool benefits among employees of other companies. Employers make irrevocable cash contributions on behalf of their employees on a periodic basis.
A third-party administrator arranges actuarial certification of funding and benefits and approves the plan's administration. The Internal Revenue Service (IRS) issued revised guidance in October 2007 that excluded some benefits for plans funded with permanent insurance. The 419(e) benefit plan can also keep contributions made for key employees separate from those of rank-and-file employees.
Advantages of a 419(e) Welfare Benefit Plan
Related terms:
Group Health Insurance
A group health insurance plan offers coverage at a lower premium than an individual plan and is available to employees of a company or organization. read more
Health Insurance
Health insurance is a type of insurance coverage that pays for medical and surgical expenses that are incurred by the insured. read more
Internal Revenue Code (IRC)
The Internal Revenue Code is a comprehensive set of tax laws created by the Internal Revenue Service. read more
What Is the Internal Revenue Service (IRS)?
The Internal Revenue Service (IRS) is the U.S. federal agency that oversees the collection of taxes—primarily income taxes—and the enforcement of tax laws. read more
Medicare
Medicare is a U.S. government program providing healthcare insurance to individuals 65 and older or those under 65 who meet eligibility requirements. read more
Nonqualified Plan
A nonqualified plan is a tax-deferred, employer-sponsored retirement plan that falls outside of Employee Retirement Income Security Act guidelines. read more
Payroll Deduction Plan
A payroll deduction plan is when an employer withholds money from an employee's paycheck, most commonly for employee benefits and taxes. read more
Pension Plan
A pension plan is an employee benefit that commits the employer to make regular payments to the employee in retirement. read more
Voluntary Employees’ Beneficiary Association Plan (VEBA)
A Voluntary Employees’ Beneficiary Association (VEBA) plan is an employer-sponsored trust used to help employees pay for qualified medical expenses. read more