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Employee benefit plan opportunities.

Many employers with employee retirement and benefit plans have devoted most of their attention to updating such plans for frequent Internal Revenue Code changes; for example, in conforming plans to the Tax Reform Act of 1986, the Technical and Miscellaneous Revenue Act of 1988 and the Revenue Reconciliation Act of 1990, per Notice 92-36. The employer's tax adviser should consider planning opportunities available through corporate-sponsored benefit plans. For example, an employer with a defined benefit pension plan that is not in full funding can accelerate tax deductions on post-year-end contributions. In addition, the employer may obtain a refund of administrative expenses previously borne by the employer but properly payable by the plan. If the defined benefit pension plan is overfunded, consideration should be given to a transfer of a portion of the excess plan assets into individual accounts for the purpose of funding retirement medical benefits. In addition, the employer can allow employees to prefund a portion of their retired medical benefit expense through a voluntary employee beneficiary association (VEBA), with the reserves structured to meet the definition of an asset meeting the requirements of FAS 106 (related to postemployment benefits liability accrual). An employer that maintains a Sec. 401(k)plan may use surplus assets of a defined benefit pension plan to fund the employer's Sec. 401(n)matching contributions. With proper planning the employer's matching contributions can be made subsequent to the employer's tax year and be deducted in the prior year related to the employee Sec. 401(k) deferrals.

Employers with VEBA plans should consider accelerating tax deductions for employee severance (buy-out)payments, and can accelerate tax deductions by making year-end contributions to the VEBA welfare benefit fund. Finally, employers paying state insurance premium taxes on group-term life insurance (particularly larger employers) should consider sell-insuring a portion of the death benefits in order to reduce the premium taxes.

From James K. Mitchell, CPA, Dallas, Tex.
COPYRIGHT 1993 American Institute of CPA's
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Author:Mitchell, James K.
Publication:The Tax Adviser
Article Type:Brief Article
Date:Jan 1, 1993
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