pre or post tax?

[Guest lindap]

If both the employer and the employee contribute to an AD&D plan, are the employee's contributions made pre-tax or post-tax?

Thanks.

[Guest JerseyGirl]

Prop. Treas. Reg. § 1.125-2, Q/A-4(a)(2)(i) (1989) specifically mentions that coverage under

an AD&D policy may be a qualified benefit. As long as the employees have a choice between the coverage and the equivilent in cash, I don't see any problems.

[papogi]

Certainly, AD&D is a qualified benefit. The issue is how contributions are made. For instance, LTD is a qualified benefit. If an employee contributes to LTD with pre-tax dollars, benefits are taxable. If the employee contributes with post-tax dollars, benefits are tax-free. I think the question relates to whether or not AD&D benefits follow the same rule. AD&D is odd because it (kind of) works like a life insurance policy (and the general rules I mentioned above do not apply to life insurance). Under 125-2, the IRS classifies AD&D as an accident or health plan. For this reason, I would apply the LTD rules I mentioned above to this benefit, as well. If the employee wants the benefit tax free, then contributions need to be post tax. If they want the contributions to be pre-tax, then the benefit will be taxable. Someone please speak up if they know that this reasoning is incorrect.

[Guest ybahti]

Doesn't it also depend on the amount of AD&D coverage (i.e. any coverage amounts over $50,00 must be post tax)?

[papogi]

That's the rule for life insurance, but I don't know that the rule applies to AD&D. It might. Someone out there know for sure? That's the tricky thing with AD&D. It acts like life insurance in some ways, but the IRS classifies it as an accident and health plan, not as group life insurance.