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BTG

Exclusion of Fringe Benefits

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I'm working with a plan that uses W-2 Comp, but excludes (among other things) "fringe benefits (cash and noncash)."

Obviously, one of the big differences between using "3401(a) wages" and "W-2 Compensation" is the value of taxable group term life.  However, since GTL is a fringe benefit, would this amount be excluded under the above definition?  Or is it only the tax-free portion of GTL that is treated as a "fringe benefit"?

On a related note, would anyone take the position that cash in lieu of health coverage (i.e., an opt-out payment) is a fringe benefit?  (It seems to me that these payments are pretty clearly W-2 comp.)

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GTL taxable is included in W-2 but is also a safe harbor exclusion there from.

I would not exclude "pay in lieu" as a fringe - it's cash comp.

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Thank you CuseFan (and good luck to your Orange tomorrow).  Would you agree then that a definition that excludes "fringe benefits" would pick up the taxable portion of GTL?

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No, you misunderstood, sorry if I wasn't clear. GTL taxable is part of W-2 pay and is included if the plan does not further excludes fringe benefits, but is excluded if the definition excludes fringe benefits. 

And thanks, hoping to get a crack at #1 seed Gonzaga, but Baylor will be a tough game. Hoping I can last the game tonight as it's way past my bedtime! At least this year we didn't have to sweat getting into the tournament!

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I don't think the Code or regs or any other IRS guidance has a clear definition of "fringe benefits." Obviously, the concept goes way beyond Section 132. Also, the IRS Pub on Fringe Benefits (15-B) has a lot of stuff that we might not consider a "fringe benefit," and that might or might not be 415 comp, e.g. stock options. Other IRS materials even list "bonuses" as a fringe benefit.

If your plan document excludes fringe benefits, I think you need to adopt a consistent policy as to what that does and does not mean and apply that.

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At the risk of stating the obvious, the reason why the plan lumps fringe benefits in with the other things you are referring to by saying "...among other things" is because of Regulation 1.414(s)-1(c)(3).   So if you are tempted to separate out only the fringe benefits, or only the GTL, I see a potential problem with your having a definition of compensation that automatically complies with the 414(s) safe harbor (which may or may not be important to you).   If you stay with excluding all those other things, then I agree with Luke that "fringe benefits" not defined for this purpose, and also "welfare benefits" is not defined in the 414(s) regulation, which is an even bigger stumbling block for many employers.

It is my understanding that the only amount included on the W-2 is the cost of the GTL in excess of a face amount of $50,000, so that is, I think, the amount that would be excluded by the "fringe among other things" option, and that cost would be the amount (or typically most of the amount) of the difference between the W-2 and the 3401(a) definitions.

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