"Cash in lieu of" group health insurance

[Guest Gary C]

We offer employees the option of declining group health insurance in exchange for a cash payment to them of a few hundred dollars, generally less than $1000, if they can certify that they are covered elsewhere, e.g. through a spouse's plan.

We require that employees make a conscious (re-)election of this "cash in lieu of" benefit each year during open enrollment. No annual election, no cash payment.

Do you do similarly, i.e. require a conscious annual reelection? Is this in fact a legal requirement? Thank you.

[GBurns]

Whether legally required or not it would be the prudent thing to do.

If you look back even as far back as Rev Ruling 61-146 you will see that the IRS usually would require verification of such coverage whether you are seeking a tax benefit for the amount or whether the process is related to a cafeteria plan choice between cash and a qualified benefit.

[KJohnson]

You are running the risk of the IRS considering this taxable income for both those who choose the cash payment as well as those who choose the health benefits.

http://benefitslink.com/boards/index.php?s...=0entry100424

[Don Levit]

According to the IRS, where an employee is offered a choice between a lower salary and employer-paid health insurance, or a higher salary and no health insurance, he must include the amount of the higher salary in income regardless of his choice. An employee accepting the health insurance, is considered to have received the higher salary, and paid the health insurance premium to the insurance company. Let. Rul.9406002, 9513027.

However, as kJohnson pointed out, you may be okay according to the Express Oil Change, Inc. case, in which a federal district court ruled that for employees who accept the insurance, the difference between the higher salary and the lower one is not subject to FICA, FUTA, or income tax withholding.

Don Levit

[mbozek]

An employee who negotiates a lower salary with health ins coverage under an employment contract in which only the written terms control does not exercise choice because the contract requires that the employer provide the health benefits. An employee can elect not to participate in a POP 125 plan which requires that the ee pay a portion of the health ins premium in return for employer contributing 100% of the premium because the 125 non discrimination rules only apply to participants. The 94 PLR includes the health care premiums under the assignment of income concept which applies only if the employee has an ownership right to income. If the employee declines additional salary during negotiation before the ee has the right to such salary, there is no assignment of income of the health insurance premium after the contract is signed because there is no assignment of rights to property under the contract.