457 Employer Contributions

[Guest RandyO]

A public school is the employer. Can the employer contribute to a 457 or 403(b) plan for an employee if the employee chooses not to elect the medical insurance offered by the employer. If the employee was to take the medical insurance, the employer would pay a portion of the premium. There is a cafeteria plan in place for this employer.

[Peter Gulia]

Leaving aside concerns about whether a choice between health coverage and a retirement contribution results in tax consequences, a first question is whether it is possible for the public-schools employer to make the contribution described. A local government instrumentality has only the power that State law grants. Under typical State law, a public-schools employer might have power to pay over salary-reduction elective deferrals, and often does not have power to pay any other contribution. A starting point is to read the statutes that might empower a 403(b) or 457(b) contribution.

[30Rock]

There is another thread on benefitslink which I have attached below, that deals with this. Neither a 457 plan nor a 403b plan are permissible options under a Section 125 plan. If the employer contributes to either plan in lieu of the health option then the health plan becomes taxable to all employees - this would be the result upon IRS audit.

Advice is to pay the health opt out in cash, and let employee decide whether to defer into either plan as a salary reduction contribution.

http://benefitslink.com/boards/lofiversion....php/t2501.html

[mbozek]

A public school is the employer. Can the employer contribute to a 457 or 403(b) plan for an employee if the employee chooses not to elect the medical insurance offered by the employer. If the employee was to take the medical insurance, the employer would pay a portion of the premium. There is a cafeteria plan in place for this employer.

I dont know why this seems so complicated.

Assume the employer allocates a certain amount of funds for employee benefits say $1500 per year and increases all employee's pay by that amount. Employee who wants health insurance can contribute $1500 to the cafeteria plan pre tax which reduces the employer's health insurance cost by the same amount i.e., the money is returned to the employer. Employee who does not want to contribute to health plan can contribute $1500 to a 403b or 457 plan pre tax. If the employee's share of health care is more than $1500 then the employer can require the employee pay the additional amount through the cafeteria plan.

[Peter Gulia]

Matt, your elegant solution of the equation reminds us that we've come almost full circle from how many employee benefits grew: as a loophole against World War II wage controls, to help meet collective-bargaining needs, and following tax treatment.

Your solution ought to work (and sometimes can if the employer and employees have enough intelligence and maturity). But in the workaday world it often doesn't fly because people have been conditioned to think in terms of health, pension, and fringe benefits rather than cash wages, and few understand well enough that benefits is a form of compensation. Moreover, collective bargaining often is designed to obscure the terms negotiated, and bears agency effects.

[jpod]

Many employers, and perhaps this describes the employer described by RandyO, don't wish to give employees the cash option. So, while mbozek's solution is the simple and intelligent solution, quite often there is push back to it.

[Guest RandyO]

A public school is the employer. Can the employer contribute to a 457 or 403(b) plan for an employee if the employee chooses not to elect the medical insurance offered by the employer. If the employee was to take the medical insurance, the employer would pay a portion of the premium. There is a cafeteria plan in place for this employer.

I dont know why this seems so complicated.

Assume the employer allocates a certain amount of funds for employee benefits say $1500 per year and increases all employee's pay by that amount. Employee who wants health insurance can contribute $1500 to the cafeteria plan pre tax which reduces the employer's health insurance cost by the same amount i.e., the money is returned to the employer. Employee who does not want to contribute to health plan can contribute $1500 to a 403b or 457 plan pre tax. If the employee's share of health care is more than $1500 then the employer can require the employee pay the additional amount through the cafeteria plan.

Yes I shaere your opinion, as it seems to me that Section 125 should not relate in this situation, but I am not a lawyer or accountant. It seems that would be the solution, but I am hearing many answers like was posted from 30Rock. Thanks for all the input and replies.