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Is there a plan similar to a Health Care Reimbursement Plan?


Guest Lee Ann Jenkins

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Guest Lee Ann Jenkins

I have a potential client that in interested in a quasi-Section 125 Reimbursement Account. He likes everything about one except the risk for himself and his employees. Big surprise! He wants to put in a certain amount of money into each employee's account and whatever they don't use give back to them at the end of the year.

I know you can't do this in a Medical Reimbursement FSA account or even a Medical Savings Account plan, but is there a Section number something plan out there where this can be done by the "rules"? I've got the software to do it, I just need the rules associated with it if there are any.

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Guest Lee Ann Jenkins

I don't think the tax treatment is even a big issue. He just wants to help out his employees without a lot of rules about what he can do with "his" money.

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LAJ, who is funding the account? You say the employer wants to make a fixed contribution, but then you say any unused balance in the account at year end will be "given back" to the employee. Under Code Section 105(B) amounts received by an employee under a self-insured medical reimbursement plan attributable to employer contributions are excludable from gross income. The exclusion applies to highly compensated individuals only if the plan satisfies the nondiscrimination requirements of Code Section 105(h). See Treas. Reg. Sec. 1.105-11. These plans can be contributory, but if they don't satisfy the risk-shifting requirements for Heath-FSAs, then the employee contributions are after-tax. A self-insured medical reimbursement plan that provides for distributions for purposes other than making reimbursements for qualifying medical expenses, probably jeopardizes the availability of the 105(B) exclusion. The employer might consider grossing-up a bonus at year end equal to the amount of the unused employee contributions, but this will be signficantly more expensive than the cumulative unused employee contributions.

Phil Koehler

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  • 3 weeks later...
Guest Matt Tuttle

Voluntary Employee Medical Accounts (VEMA) does what your client wants. The employer and employee are allowed to contribute to individual accounts for employees, the employee can choose from a menu of benefits chosen by the employer or mutual funds. Unused balances grow tax deferred and can be used at any time tax free to pay for health or welfare benefits. This is new so let me know if you have any questions.

Matt Tuttle

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