matter, any employee welfare benefit plan
must have a trust (or a custodial account in
the case of certain plans of self-employed
individuals) to prefund IBNR on a deductible basis, except if it’s paying those
amounts to an insurance company.
Although Revenue Procedure 2008-52
creates a loophole, we continue to see advantages for funding IBNR (and all plan
benefits) through a trust. These include:
■ No need to bifurcate IBNR. All IBNR,
whether eventually payable to third
parties or directly to employees, may
be deducted for the year contributed;
■ Funded IBNR is removed from the
employer’s balance sheet;
■ Trust assets become plan assets, improving benefit security;
■ Plan assets reduce the employer’s fiduciary burdens (and liabilities) under
ERISA if it isn’t the trustee.
whether supported by an actual
contribution to a fund or by acruing
the liability on the employer’s books,
iBnr must be calculated by a qualified
actuary to withstand irs scrutiny.
Employers must understand that not
establishing a trust fund doesn’t obviate
the need to obtain an actuarial certification of the IBNR. Whether supported
by an actual contribution to a fund or by
accruing the liability on the employer’s
books, IBNR must be calculated by a qualified actuary to withstand IRS scrutiny.
wAyne w. wisonG is senior director
of erisa compliance for mahoney &
associates, is a member of the california
and georgia state bars, and is recognized
by the florida state bar as authorized
house counsel to mahoney & associates.
JuAn n. Kelly is senior actuarial
advisor, mahoney & associates, and part-time lecturer on employee benefits at
the University of miami.
Editor’s Note: This is an abbreviated version
of an article that was posted on the Mahoney
& Associates website. To read the full article,
go to www.mahoneyandassociates.com/
downloads/30July09_OnPoint_IBNR_Final.pdf.
This article is solely the opinion of its authors.
It does not express the official policy of the
American Academy of Actuaries; nor does it
necessarily reflect the opinions of the Academy’s individual officers, members, or staff.
Readers should seek expert advice on these
subject matters and not rely on the authors.
