Multiemployer Fund as Sponsor of Cafeteria Plan

[Chaz]

Can a multiemployer fund sponsor a cafeteria plan for the benefit of the employees of its member employers? Q-3 of the proposed 125 regulations seem to indicate not because a "cafeteria plan is a plan maintained by an employer for the benefit of its employees." Is there any way that a cafeteria plan (with premium payment, FSA, and DCAP features) can be structured to be located at the fund level and with only one Form 5500 filing for the FSA feature? Any suggestions are welcome.

[Ron Snyder]

I presume that by "multiemployer fund", you are referring to a Taft-Hartley fund. There is no reason such a group, pursuant to a collective-bargaining agreement (CBA) could not sponsor such a plan. However, several questions and obstacles exist:

1. Does the plan exist pursuant to a CBA? (Was is bargained for?)

2. Would employers adopt on or participate by being signatories to the CBA?

3. Why would a "fund" sponsor the plan rather than the union?

Most teachers associations bargain for, adopt, maintain and administer such flex plans. Other collective bargaining groups do as well. There is no big mystery here. The key to making it work is including it in the collective bargaining process.

[Chaz]

Thanks for your attention. See below for my responses to your questions:

1. Does the plan exist pursuant to a CBA? (Was is bargained for?) YES
2. Would employers adopt on or participate by being signatories to the CBA? YES
3. Why would a "fund" sponsor the plan rather than the union? WELL, THE EMPLOYERS ARE MAKING CONTRIBUTIONS TO PAY PART OF THE PREMIUMS. THE FUND HAS EQUAL NUMBERS OF UNION AND MANAGEMENT TRUSTEES.

My initial view is that is should be possible for a Taft-Hartley plan to sponsor a Section 125 plan. My only sticking point is the requirement that the plan sponsor be the participant's employer. My research turned up no examples of such plans; I just found some in which the participant does not have the choice to opt out (and thereby take cash); indeed in all such examples, the employee did not have to contribute anything. Such plans are, by definition, not cafeteria plans.

Can you point me in the direction of any examples of Taft-Hartley plans sponsoring a cafeteria plan? That would be MOST helpful and appreciated. Thanks.

[jpod]

Granted I have not looked at Section 125 or the regs (proposed or final), but I think the Section 125 plan has to be maintained by the person (i.e., the employer) who would pay the cash compensation to the employees in lieu of the benefits choices allowed under Section 125.

[GBurns]

vebaguru

In addition to examples of Taft-Hartley plans can you also cite a few of these teachers associations that sponsor, maintain and operate flex plans ?

[Ron Snyder]

While my duty to my clients makes it impossible for me to divulge information gained in confidence, I can refer you to public information available on the internet. For Example

[Guest Gompers]

Look a this PLR about a multiemployer "non-cafeteria plan" cafeteria plan.

http://66.77.33.7/pub/irs-wd/0007021.pdf

[Chaz]

Gompers - I came across this PLR in my research. The facts in the PLR differ from my situation in that our client wants to provide the participants in the multi-employer plan with the opportunity to use pre-tax dollars to pay their contributions for premium payment and to fund an FSA. In the PLR, there is no employee money involved (at least it didn't seem to be discussed) and the participants could not "opt out" and receive their full salary instead.

I am getting the sense that there is no statutory construct in which a multiemployer plan can sponsor a cafeteria plan for the employees of member firms. I guess the only way to accomplish the stated goals would be for each member firm to adopt its own plan on behalf of its employees and have the multiemployer plan provide administrative services.

Does anyone have insights?

[RTK]

My initial take is that a multiemployer plan could include a cafeteria plan (without any real research). The Code itself requires that participants be employees and that the employees would choose between cash (i.e. wages) or qualified benefits (i.e., contributions to multiemployer plan to provide qualified benefits). Plus, I'm not sure that maintaining a plan is the same as being the plan sponsor.

That said, I don't believe that 125 plans have received a warm welcome in the multiemployer plan world(particularly for health FSA) because of the use it or lose it rule, the uniform coverage rule, limitation on mid year changes, and general administrative and collection issues. Premium conversion is generally not an issue, because most multiemployer plans do not require employee contributions for coverage.

[GBurns]

vebaguru

Your link is to ISTA. As far as I have ever known ISTA provides administration services and acts as an insurance agency, much in the same way that FBMA does for Miami-Dade PS and many other large PS Districts and States. It does not sponsor, maintain and operate the cafeteria plans and can lose its ability to administer.

Here is a link to the Indianapolis Public School District. IPS is the largest employer using ISTA services. It is IPS who sponsors, adopts, maintains and operates their section 125 Cafeteria Plan that ISTA administers and sells products under.

http://www.benefits.ips.k12.in.us/Summary_...ts/default.aspx

[Ron Snyder]

I don't know how other groups work. I am intimately familiar with 2 state teachers unions who sponsor a 125 plan and who have an administrative affiliate/subsidiary who administers the 125 plan. A local school district may adopt onto the plan through the collective bargaining process.