Cash vs. benefit

[Guest parrot87]

NVM

[J Simmons]

You only need the exemption from constructive receipt provided by IRC 125 if cash or some other taxable benefit is an option given to EEs as an alternate to one of the allowable tax-free benefits. If the EEs' only choice is between two or more tax-free benefits, you do not need to comply with IRC 125.

'Group health plan' is a term specifically used for COBRA and HIPAA purposes. Whether you have a group health plan does not depend on choices presented to EEs. However, health flex accounts under a 125 plan would comprise a 'group health plan'.

[J Simmons]

Actually, more directly, I was wondering if a choice between:

$50 of cash and $50 of flex credits vs. $100 in employer contribution towards a fully insured group health plan would constitute a cafeteria plan.

That kind of a choice would need to be offered in a cafeteria plan context to keep the EE choosing the $100 ER contrib to health coverage from being taxed on $50 cash that he could have alternatively chosen (that's assuming the $50 of flex credits has to be used toward one or another tax-free benefits and not taken as cash or other taxable benefit).

You could split this and offer two choices: one being between $50 of cash or $50 in ER contrib toward health insurance premiums (which is what requires the cafeteria plan) and a second that is between $50 of flex credits--per my assumption--and another $50 in ER contrib toward health insurance premiums (this second choice would not need to be provided in the cafeteria plan context). So splitting it out might impact the 25% concentration and nondiscrimination testing.

How about $50 of cash, $50 of flex credits vs. $200 ER contribution ...

Since the only amount of cash (or other taxable benefit involved in the choice) is $50, then you'd need a cafeteria plan for the choice in order to keep the person choosing $200 ER contrib towards the health insurance premiums from being taxed on $50. Again, you could split this out into two choices, one in the cafeteria plan context of $50 cash or $50 ER contrib toward health insurance premiums, and leave the remaining choice--$50 flex credits or the other $150 ER contrib towards the health premiums--outside of the cafeteria plan context. This again would have an impact on the testing, and therein lies a planning opportunity or pitfall potential.

How about ... $100 cash & $100 flex vs. $100 in a fully insured ghp

You would need a cafeteria plan in order to have the person who elects the $100 in fully insured ghp to not be taxed on the $100 cash he could have chosen.

Again, the $100 flex choice (assumed to be a choice only among tax-free benefits) could be taken out of the cafeteria plan context and thereby change the testing of the cafeteria plan.

[J Simmons]

a second that is between $50 of flex credits--per my assumption--and another $50 in ER contrib toward health insurance premiums (this second choice would not need to be provided in the cafeteria plan context).

to clarify, this arrangement would be an HRA, correct.

Yes.

[J Simmons]

Compliant? Withe what requirement, Matthew?

[J Simmons]

The reason I ask 'compliant with what?' is that only need to comply with 125 if you present an employee with a choice between a taxable benefit (like cash) and certain tax-free ones. So if your question is refined to whether you need for Options 1 and 2 to comply with 125, the answer to both would be yes.

Whether or not the arrangement meets all the compliance aspects of a 125 plan, that cannot be determined from just the positing of what choice the employees are given.