Page 289 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 6. Employee Benefits and Perquisites 275

These plans are also called Archer medical savings accounts, or Archer MSAs, as defined in
Section 220 of the Internal Revenue Code. These accounts are with a bank or insurance com-
pany and are expected to be used with high-deductible health plans (HDHPs) with limited
tax-deductible contributions for certain health-care expenses. The maximum annual contri-
bution by either employer or employee (not both) is 65 percent of the premium for the
HDHP for individual coverage or 75 percent for family protection.
Given the rather modest tax savings, these accounts are of greater interest to middle-
income individuals than to highly paid executives.

Domestic Partner
While coverage for spouse and dependent children is typical in most plans, a new definition
has arisen—that of domestic partner. This typically is defined as a person in a committed,
exclusive relationship with the employee residing at the same address. It may be limited to a
heterosexual partner or include same-sex partners. In some areas, such coverage may be
required; however, executive interest is low unless a domestic partner is present.

Supplemental Health-Care Coverage
This begins where basic health-care coverage stops. After the executive has been reimbursed
by the basic plan covering all employees, the balance is quietly reimbursed under a supple-
mental plan—leaving the executive with no health-care expenses. In the case of nonreim-
bursed medical expenses, a deduction on personal taxes can be taken on the amount in excess
of 7.5 percent of income. However, for the executive earning $100,000, this would mean the
first $7,500 would not be deductible; furthermore, due to the tax bracket, the individual
would also have had to earn almost twice that amount in order to pay the bills from after-tax
income.
However, under Section 105(h) of the IRC, the cost of this supplemental plan, while
deductible by the company as a business expense, is considered income to the recipient if it
is provided under insurance. Under a self-insured (by the company) plan, payments received
are also considered income for tax purposes (unless the plan is nondiscriminatory—by
definition an employee benefit, not a perquisite).
While supplemental health-care coverage can be of high importance to executives, it
has not received wide acceptance for a simple reason: executives find it difficult to explain
to shareholders and lower-paid employees that health-care expenses are being totally
reimbursed only for the top-paid executives.
In addition to full reimbursement of expenses covered under the basic health-care pro-
gram, the supplemental coverage could include items not covered by the basic plan. For
example, massage therapy might be covered under the supposition that a relaxed executive is
not only a better-functioning executive but also a better-looking one.

Qualified Domestic Relations Orders

A qualified domestic relations order (QDRO) can be looked upon as a type of assignment
benefit. It is usually an agreement between two or more parties on who will receive what
benefits. While it typically includes alimony and child support, it could address a medical
plan but not pension benefits, which are protected by ERISA. This is probably of low
interest to most executives.