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Non Elective Employer Contributons


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An employer wants to pay ee portion of employer sponsored insurance premiums for one month. Can this be considered to be a non elective employer contribution and therefore not taxable income?

Yes. However, the problem is that this amount "may" not be made pursuant to a consistent formula defined in the plan (i.e. everyone receives a contribution from the employer of the same percentage of salary). So, the employer cannot arbitrarily decide to make a contribution to one employee and not others if the language in the plan doesn't support it.

Good Luck!

CPC, QPA, QKA, TGPC, ERPA

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However, the problem is that this amount "may" not be made pursuant to a consistent formula defined in the plan (i.e. everyone receives a contribution from the employer of the same percentage of salary). So, the employer cannot arbitrarily decide to make a contribution to one employee and not others if the language in the plan doesn't support it

My understanding is that if based on a percentage of salary, this could run into discrimination problems. I think the problem with this particular company is that everyone who has employer provided insurance will receive this benefit/contribution, but those who do not have such insurance will not be getting a similar contribution.

Can an employer therefore, simply decide to pay for everyone's premium for one month and not similarly benefit other employees who don't have the insurance? My thinking is no and that the other participants must also get the same but applied to their non insurance benefits like Health or Dependent Care FSAs.

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No, no, no :)

You must allocate employer contributions pursuant to the formula written in the plan. Typically, the plan will say "everyone will receive the same percentage of salary or same dollar amount". You'll likely never see a plan written to say everyone who has an insuarance policy will receive an employer contribution in the amount of the insurance premium for the year.

Hence, it's a no go.

Good Luck!

CPC, QPA, QKA, TGPC, ERPA

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It turns out that the employer's insurance company is instituting a premium free month so it's not any type of employer contribution which seemed to be the communication as I understood it. It was known before the plan year that this would be the case but the month it would occur was not initially known; the total elections aren't effected. So it seems to be merely an accounting problem which I think can be easily handled.

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