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"Bump" an employee gross salary verses employer contribution to FSA.


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Guest okiedokie

Is there any violations to rules and regulations if an employer wants to "bump" or increase and employees gross pay and then take that amount and pre-tax it for the purpose of contributing it into a FSA (section 125 plan)? For example; employer increases gross monthly salary by $100.00 for employee. Employee already has committed to having a $50.00 contribution per month to the FSA. Can that $100.00 that was a gross salary increase, now become pre-taxed and contributed to FSA? Thus also making a total contribution $150.00. This employer who is considering doing this, does not have any type of FSA set up already and insurance is not an option. (small doctors office with 3 employees excluding the doctor, whom will not be a participant).

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Doesn't that simply mean the employee got a raise? Getting a raise probably is not cause for re-selecting your 125 deferrals.

Probably won't impact anyone here because we don't get raises. :D

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Guest okiedokie

Thanks pax for the reply. That was our general concenses as well, sometimes one just can't be too sure. Hope you someday do get a big raise!! :)

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"Employee already has committed to having a $50.00 contribution per month to the FSA..." " This employer who is considering doing this, does not have any type of FSA set up already"

I am not sure what is really going on here. If you don't have an FSA established already, I am not sure how an employee could have committed to anything. Also, if you are covering everyone you could just make it an employer contribuiton to the FSA or set up an HRA and not worry about the mid-year election change rules. Finally, you might just scrap the whole FSA concept and consider whether an HSA with some type of high deductible health plan would work.

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KJohnson has a point, If no FSA, What would the employee have committed to?

However, I would rather consider a simple 105 MERP instead of an HRA etc. Then the employer would only have to reimburse any actual medical expenses rather than having to give the $100. The employee would not get the extra money but would also have no additional out of pocket expense up to the extra $100. The danger of a high deductible plan would also be avoided.

The employer would have lessened their cost without endangering the employee and the employer could use the savings for a end of year bonus if he feels that the employees will miss, or resent not getting, the extra $100 which if they had contributed to the FSA would have been subject to the "use it or lose it" forfeiture rules and would have been of no use to some employees.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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