Treasury reverses on tax exclusions for self-funded plans

May 29, 2007

The Dept. of the Treasury has reversed its position on provisions of the Pension Protection Act of 2006 that would extend tax advantages to self-funded health, long-term care, and accident plans.

Treasury said in a recent letter to Rep. Jim McCrery (R-LA) that it would reinterpret provisions of the PPA so that up to $3,000 of gross income used to pay qualified health insurance premiums in self-funded plans would be excluded from tax liability. Earlier, Treasury had said the provision, which was given to retired or disabled public safety employees, did not extend to self-funded plans.

Treasury said it was making the change in response to a technical corrections bill currently being developed in Congress that would clarify the issue and include self-funded plans in the exclusion. Rep. McCrery said the provision was always meant to extend to self-funded plans.

“Thus, in anticipation of the technical correction, ‘qualified health insurance’ will include employer-provided coverage under both insurance or an employer’s self-funded plan,” said Kevin Fromer, assistant secretary for legislative affairs at Treasury.

Fromer said Treasury would issue a formal announcement of the administrative position soon.