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AFLAC/"Flex One" Sec. 125 Program


Christine Roberts

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This prior thread

http://benefitslink.com/boards/index.php?s...p;hl=AFLAC+flex

does a good job explaining the compliance issues presented when an employer allows employees to pay for individual health coverage (e.g., cancer coverage, intensive care coverage) on a pre-tax basis through the employer's Section 125 plan.

It so happens that AFLAC provides its own Section 125 program - Flex One - which naturally and prominently includes among the list of eligible pre-tax benefits these very types of individual coverage.

Has anyone ever looked at whether this type of arrangement would constitute employer "endorsement" of the individual coverage and hence dissolve the "voluntary plan" exception to ERISA that generally applies to these type of individual policies?

I would be interested to know. Thanks.

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  • 3 months later...
Guest Mr. Kite

I am also interested in understanding how the inclusion of "voluntary insurance" in a cafeteria plan meets the "no employer contribution" requirement of the DOL safe harbor. The cafeteria plan rules generally allow an employer to offer employees a choice between a taxable and a non-taxable benefit without running afoul of the constructive receipt rules. Although in a common sense view the employee "pays for" the insurance through salary reduction, isn't it nevertheless considered to be technically paid for with "employer contributions"?

Does anyone know if this particular issue has been directly addressed by the DOL or the courts?

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Aside from "employer contribution" issues, as far as I recall, Flex One and other such voluntary programs require employer endorsement otherwise How would the enrollers get access to the premises, to the employees while at work on company time, and get the necessary payroll slot etc through which to make the deductions ?

I also recall that Flex One (like others) require some sort of exclusivity for a specified period.

If any sales rep of any company could sell the products to an employee, who could then just notify the Payroll Dept to make a salary reduction or deduction for the premium, that would be truly voluntary and have no employer involvement that could be applicable. To do a voluntary program otherwise requires more employer involvement, some restrictions and endorsement/selection of some sort.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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Salary reductions are 'employer contributions' for purposes of the tax code, but are employee contributions under ERISA Title I.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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George:

You make a lot of sense in your assessment of employer involvement.

If a person already had an individual medical policy before coming to his employer, and it is payroll deducted, would you see any problem with that policy being part of an ERISA plan, even if the employer reimburses the employee for part of the premium?

John, that is very interesting about ERISA saying that the premiums are paid by the employee.

Do you have the citation in Title 1?

Don Levit

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Hey, Don,

In defining 'plan assets', DoL Reg §2510.3-102 explains that "participant contributions" are those amounts "a participant or beneficiary pays to an employer, or amounts that a participant has withheld from his wages by an employer."

Also, in the safe harbor exclusion of certain group (or group-type) insurance programs under DoL Reg §2510.3-1(j), the first requirement is that there be

(1) no contributions are made by an employer or employee organization; ... .

If under ERISA salary reductions were 'employer contributions' as they are under the tax code, then these exempted insurance programs could not be paid through salary reductions.

Also see DoL Opinion Letter 96-12A (July 17, 1996) where payroll reductions and corresponding payments by the employer to the insurer did not of itself render the arrangement to be a plan subject to ERISA.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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John:

Thanks for your reply.

Very astute observation about plan assets.

By defining plan assets as either amounts a participant pays to an employer, or has withheld from his wages by the employer, this seems to definitely assert they are employee contributions, not employer contributions, right?

Also, aren't salary reductions not considered ERISA plans, but, rather, "payroll practices."

For example, payroll deductions for IRAs are not considered ERISA plans.

Don Levit

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Hey, Don,

ERISA is more straight forward in use of language regarding salary reductions being 'participant contributions' than the tax code is referring to the payment of a corresponding amount by the employer as 'employer contributions'.

Payroll practices where the employer limits its involvement accordingly are not ERISA plans. However, employers are often tempted to get more involved than they should and what could have been an exempt payroll practice sometimes becomes subject to ERISA.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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