Whats the “safe harbor” for how much plans can keep in reserves?
There is a legal vs. practical answer to this, since circumstances have changed since this law was passed. In 1984, DEFRA included “reserve limits” for “funded welfare benefit plans”. There was lots of talk about “safe harbors”, but they later turned out to be neither safe nor a harbor. Essentially, IRS doesn’t want any more put in the health plan account (judged at year end) than was reasonably expected to be needed. If you have a lucky year, and there’s 60% left, fine…but you’re not supposed to save money for some vague rainy day. You use the left-over money and only add enough in the second year as you honestly expect to need for the year. However…since 1984, government has hit plans with dozens of hidden & unpredictable costs such as several types of MSP, COBRA, HIPAA, etc. etc. Many of them hit in the middle of a year. So, guessing how much might be needed in any year is sort of a crap shoot. So, if your client wants to keep reserves, simply jot down a list of reasons (the unp
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