Former employees participation is a cafeteria plan

[Guest Diane DuFresne]

Can former employees who are still receiving payments from a deferred compensation plan sponsored by the former employer (still receiving a W-2) defer some of that compensation into a premium only cafereria plan to pay for their health insurance?

The regs define employee to include former employees; however, my research indicates that former employees may not reduce their pension income as if it were wages or salary; that is, any contributions by former employees must be made with after-tax dollars.......

Any comments would be appreciated. Thanks.

[GBurns]

Although I am not yet offering my opinion, I must ask, Why do you regard the payment of the deferred compensation as being pension income? In what box on the W2 do you report these amounts etc?

[Guest Diane DuFresne]

I was considering the broad sense of the term pension income. The deferred compensation that is being paid is reported in box 1 of the Form W-2.

[Guest b2kates]

Diane,

I am not certain of the techically correct answer from a deferral standpoint.

However, you can get to the same place. an employer may provide health insurance tax free to a retired employee income tax free to the employee. It seems to me that the employer could restructure the deferred payment to reduce the amount paid and provide the medical. This would be outside the 125 plan.

Brett