PSCA Takes Issue with PS/Medical Account Ruling

December 14, 2005 ( - The Profit Sharing/401(k) Council of America (PSCA) has taken issue with an IRS revenue ruling concerning profit sharing plans that include medical reimbursement accounts.

According to Ed Ferrigno, PSCA’s Vice President, Washington Affairs, Revenue Ruling 2005-55 invalidated profit sharing plans that include a medical expense reimbursement account, if the account is treated as a tax-free employer benefit.  

In a letter to the IRS, Ferrigno notes that the revenue ruling gives plan sponsors until the first day of the first plan year after August 15 t to make changes in the plan and the treatment of distributions from these accounts.   At issue is the fact that many plans have had medical accounts in them for a number of years, and many participants have accumulated large account balances.

The letter seeks to convince the IRS to amend the revenue ruling and make the effective date no earlier than the first plan year beginning after December 31, 2006, or later.   The PSCA is also asking that, for collectively-bargained arrangements, the ruling not be effective until the end of the collective bargaining agreement, if later than December 31, 2006.

Finally, PSCA asks the IRS to withdraw the revenue ruling and issue it as a regulation so there can be public comment and hearings since the Council feels that Regulation 72-15 allows medical accounts within plans qualified under Section 401, including profit sharing plans, and that the distributions are subject to the rules of Section 104 and 105 of the Code.

The PSCA Web site is