Can insurance buy back (i.e. cash out) be made outside of cafeteria pl

[jstorch]

Employer provides health insurance; employees pay 20% of premium, employer the remaining 80%. Employer has a Code § 125 cafeteria plan, so employees pay their share of health insurance premium pre-tax.

I recently found out that if employees do not take health insurance, at the end of the year the employer pays them a "buy back" bonus (bonus is less than the amount employer would pay for the insurance). Apparently there is no official structure to this buy back program. I strongly suggested running the buy back through the cafeteria plan.

Employer's plan provider said the buy back is set up as "deferred comp" (no further detail on what that means at this time) and is not able to go through the cafeteria plan. Provider's suggested alternative is that the buy back should be a stand alone program, with a separate plan document.

Q: Does the provider's suggestion work? Should I insist the employer's current cafeteria plan be amended so that the buy back goes through it? Any comments or suggestions appreciated.

[mroberts]

A buy back plan would be a company policy. If you give an employee $3000 a year to buy benefits and they don't use it all, it's your perrogative if you want to compensate them in any way. Some companies set up in a cafeteria plan will not give their employees anything.

I've never seen a cafeteria plan document with wording relating to a buy back although that doesn't mean it is legal or illegal. My suggestion would be to keep it out of the cafeteria plan document. Besides, if you ever have to amend your buy back policy, it's less messy to change your company policy rather than a cafe plan doc.