New "Flexible Benefits Plan"

[Guest Billy D.]

Does anyone have information about a new "Flexible Benefits Plan"? This plan allows each employee a fixed dollar amount to be used to fund the retirement plan, pay insurance premiums, or purchase any of a variety of benefits.

I am not sure of the name of this plan.

Thanks,

[MGB]

Nothing new here. You describe a standard cafeteria plan under Section 125. That has been around for over 20 years.

[Guest Billy D.]

MGB,

I don't think so. Cafeteria plans do not allow the participant to choose retirement plan funding do they?

What I am hearing is that under this new plan a participant would be given, say $500 per month. They could put $250 in a retirement plan, use $200 for health insurance, and use $50 for other insurance.

[mbozek]

An employer can always make contributions to an employees FSA, see IRC125©, and the employee can allocate the funds among various options including contributing the funds to a 401(k) plan. see IRC 125(d)(2).

[papogi]

mbozek is correct. Whether a 401(k) is funded by "elective deferrals" or by employer-provided credits doesn't matter. Since the employee had a cash option (he/she could have opted not to use the credits and instead taken the cash, thereby increasing salary), the channelling of the employer credits into a 401(k) is effectively the same as a true "elective deferral."

[david rigby]

Sure, lots of examples.

Probably the "new" part of the original post is that it is new for that particular employer.

However, there is one difference to remember. The "flex dollars" that are spent for medical/dental insurance, reimbursement accounts, etc. are not subject to FICA tax. If those dollars (usually, whatever is left over after all other choices) are placed in the employer's 401(k) plan, then FICA tax does apply.