Union plan - cash reimbursement given to those who elect out of health ins.

[Guest jc1457]

Hi,

I will try to give as much info as possible with this. I think something is wrong here and want to confirm this.

We have an employer who's employees are covered by several different unions. One of the unions has negotiated a type of arrangement for their healthcare coverage. For any employee who wants health insurance, the employer pays for the health insurance. For any employee who does not elect to have health insurance, they are set up with an annual $4000 reimbursement account. They can submit medical receipts to the employer who will then reimburse the employee for a maximum of $4,000 per year. Everything is done tax free. At the end of the year, any money left in the employee's account remains with the employer - so if receipts are not submitted, no payment is made to the employee. Again, all reimbursements are done tax free to the employee.

My issue is, there is no cafeteria plan in place. Shouldn't there be one? Is there any way to set something like this up without a cafeteria plan? I am not familiar with unions and wonder if unions have greater flexibility?

These are union negotiated benefits, with several attorneys involved. I would be surprised if they were doing something that was not previously researched.

Thank you so much for any help you can give.

[QDROphile]

A cafeteria plan is relevant only for an employee choice between cash (or taxable benefit) and a qualified benefit, such as health insurance. You describe a choice between two different kinds of health insurance, both of which appear to be nontaxable employer health coverage. No meat for a cafeteria plan.

[Guest jc1457]

A cafeteria plan is relevant only for an employee choice between cash (or taxable benefit) and a qualified benefit, such as health insurance. You describe a choice between two different kinds of health insurance, both of which appear to be nontaxable employer health coverage. No meat for a cafeteria plan.

Thank you so much for responding. I really appreciate your help - I was sure there was something I was missing here.

Can I ask a follow up question. Are you saying that by reimbursing medical expenses - that this is construed as the employer offering a self-funded insurance plan? I did not realize that this could be done without a written plan and on a tax free basis.

Thank you again.

[QDROphile]

Section 105 of the tax code requires a written plan document, but nothing says that the writing must have the word "plan" in it or have its pages be joined by a single staple. What constitutes best practices is another question.