Family coverage opt-out

[Guest calcu]

We have a self-insured health plan. We currently do not charge employees for coverage, not even family coverage. We would like to encourage employees to not elect family coverage. Instead of giving those employees with family coverage money in lieu of coverage, we would like to make 401(k) contributions on their behalf as an incentive to not elect family coverage. For some reason, this just does not seem right to me. Would this violate some sort of discrimination requirements? The idea is to not offer individuals with single coverage anything. We would give individuals an opportunity once per year to elect to receive a 401(k) contribution in lieu of family coverage. It is my understanding that this would have to be done through a cafeteria plan to avoid constructive receipt issues.

If it is acceptable, our 401(k) plan has a vesting schedule for employer contributions, would this also be subject to the vesting schedule? It doesn't seem like it should be?

If anybody can guide me to any authority, articles, etc., I would greatly appreciate it.

[Guest lschaab]

You can only offer a deferral of cash to a 401(k) plan if you sponsor a cafeteria plan with a 'opt-out' provision. The deferral cannot be a direct (or 100% of the cash remaining) defferal, it is first subject to taxation (FICA). The "choice" must exist.

[Guest calcu]

Does anybody have a problem with only offering individuals with family coverage the cash incentive to opt out? This is a self-insured plan, but I don't see anything that would prevent this. Thoughts?

[KJohnson]

Many (most) practitioners would say that if you did this without a 125 plan you would have a taxable event not only for those who took the "cash" but also for those who took the family coverage.

[jsb]

OK, so I never enroll my family in the health plan, though I could. I would now get your cash payment?

I have family coverage and I drop the family, I get the payment?

Is a domestic partner eligible for coverage under your plan? If I drop the DP do I get the payment?

If I am single, I don't get the payment because I have no dependents?

If I'm single and get married, but don't add the new spouse, now I get the payment?

If I get the payment and then my spouse and children are all killed in an accident, the payment stops?

I have a philosophical problem with this plan, but don't know that it necessarily would violate any laws if structured correctly. Have it reviewed by a VERY GOOD benefits attorney and make sure your organization is willing to take the flak from the single people.