Understanding 419(e) Welfare Benefit Plans: Benefits

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.

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.