Joe Priselac

Lydia, Here in New York the VEBA trend has been picked up by the largest teachers union. They have been negotiating contributions from the school district so that the union can arrange and control cetain welfare benefit plans. One school district even turned over the entire benefits program over to the union who then negotiates with insurance carriers or TPAs.

Thornton, The answer remains the same. The premiums paid in full by the employer are not part of Section 125 and are not included in any discrimination testing.

The answer to your question depends on whether the insurance is self-funded or not. If the employer provides health benefits on a fully insured basis, then they certainly can fully pay for the insurance of the vice-presidents and make the regular employees pay for all or part of the insurance.If the employer has a self-funded plan, the discrimination rules under IRC Section 105 come into play. Hope this brief synopsis is helpful.

Private Letter Ruling 9603011 covers this subject exactly. Basically the fair market value of the coverage attributable to the Domestic Parter should be included in the taxable income of the employee.

Curt, The IRS has specifically held that improvements such as ramps and widened door ways to accommodate a handicapped individualare deductible in full. Rev. Rul. 87-106, says that these types of expenses are deemed NOT to improve the value of the property, so you don't have to worry about a partial deduction. If you want a copy of the revenue ruling, let me know and I'll send it to you.

I am assuming that you have a Section 125 Plan. If you don't, you should adopt one to take care of the constructive receipt problem caused by offering cash in lieu of health insurance. There is no "plan" as such. We have clients who give employees 100% of premiums saved in their paychecks all the way down to a few hundred dollars. Some clients only alow employees to use the opt out money on a pre-tax basis through a IRC Section 125 Plan. Other clients make a tiered cash out based on taxable or non taxable use. Each employer is different and adopts a plan that seems to accomplish its objectives at the time.

There are a number of states which provide more generous continuation coverage than COBRA e.g.,California. It is unclear at this time whether these laws are preempted by ERISA. I am interested in knowing how people are addressing this issue.

RB, If a Cafeteria Plan offers a non qualified benefit, it can be disqualified and therefore any pretax salary reductions or reimbursements could become taxable income.

SG It sounds like you have a seasonal type of business such as a landscaping company or a school district. The plan can be operated so that the entire annual election is withheld before the scheduled layoff occurs.Then you don't have to worry about catching up contributions. To specifically answer your question, yes you can allow employees to catch up because the proposed Section 125 regulations allow employees to change their salary reduction elections when they take unpaid leave i.e. change in work status.

Dave, It certainly would be easier if the plan were calendar year, but it should not be impossible to keep track of a fiscal plan year. In reality 99% of the claims are handled the same as a conventional DCA because of the way most people pay for dependent care. Joe

Dave, You can operate a dependent care reimbursement account on a level funding basis. Although there is no legal requirement mandating this like there is in a medical FSA, there is no rule prohibiting a plan sponsor from operating DCA in this manner. The second concern about over reimbursement should be resolved by proper tracking of reimbursement amounts. We have successfuly operated plans along these lines.