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Welfare plan - pre-tax contributions


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A client wants to require their two employees to make pre-tax contributions for medical benefits. They don't want to give them a cash or deferral election, but they would have to take the payroll deduction. I don't believe this would count as a cafeteria plan because they couldn't take the cash, but can they require the pre-tax contribution from the employees?

Thanks

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Are you saying that the employees would not have a choice whether to take health insurance and that paying for benefits is a condition of employment? If so, you are correct that no cafeteria plan is necessary. This is permissible, but, as QDROphile alludes, it is not a common plan design.

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A client wants to require their two employees to make pre-tax contributions for medical benefits. They don't want to give them a cash or deferral election, but they would have to take the payroll deduction. I don't believe this would count as a cafeteria plan because they couldn't take the cash, but can they require the pre-tax contribution from the employees?

Thanks

Employer cannot require employee to pay for anything. The employer can require premiums paid by the employee run their contributions through a POP.

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If it was a condition of initial employment, then a one time irreversible election might be allowed as done in Re Express Oil Change..

If, however, the existing employees are going to reduce their earnings, this would be electing a deferral which would require a POP Cafeteria Plan with a salary reduction agreement. They are giving up cash for deferral.

I do not think that the law allows an employer to mandate that an employee pay for anything such as this. Isn't this similar to the individual mandate problem the White House is having with ACA?

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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I am not aware of any law that prevents an employer from requiring its employees to purchase health insurance as a condition of employment.

In my view, a cafeteria plan is not required in this scenario because the employees are not given a choice between receiving health benefits and cash. Their only choice is between a job with health benefits and unemployment.

This is not a comment as to the advisability of this scenario, just a comment on the law.

I'm not seeing a connection between this and the individual mandate. Am I missing something?

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If these were potential employees and this was part of the job offer, I would agree, but, these are current employees who are already under agreed conditions.

I would think that a condition of employment is ... This is how it will be done IF you take the job.

To make the change afterwards is a change of conditions.

To make the change afterwards and make it mandatory with no choice is different but still a change of conditions.

To make the change afterwards and make it mandatory with the threat of termination is a whole different ball game.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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In the case of at-will employment, which I assume is the case here, and in the absence of a contractual promise, which I assume is not the case here, an employer can change the conditions of employment at any time and for (most) any reason. The change is in consideration for employment going forward.

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No, no, and no!

Why not? (Assuming it's at-will employment.)

at will has nothing to do with it. The employer could require participation and cost contribution if it's part of an employement contract only. If there is no contract, there can be no forced enrollment/payment.

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There has been no mention of a contract by the OP. All that is known is that the employer wants to make the change.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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