Paying for benefits or reimbursing expenses

[Guest kittykat]

I work with various Physican groups that have all Highly compensated with both share-holder and non-share holder classifications. Does anyone have experience with an employer reducing compensation to pay for benefits (LTD, LTC, and Profit Sharing contribution in 401k Plan) pursuant to a comp agreement that makes no mention of this arrangement. The physicians verbally agrees to this arrangement. The employer give the physician the one time option to take the "benefit" instead of cash and does not include the benefit costs in taxable compensation.

Additionally, the ER reimburses the employee for unreimbursed medical expenses (with no limit - have seen $100K plus reimbursement.)

My question -

1. If the ER group wants to do this type of "trade-off" can they legally do so within the employment contract? Can we use generic "ER may reduce salary to pay expenses" statement in employment contract.

2. Can the ER reimburse medical expenses without a formal MERP or 105 plan?

3. Is there a maximum that can be paid under a MERP type of arrangement?

4. Is it possible for the business to deduct the expense and not include the premiums paid or reimbursement in the physician's taxable income?

Thx

[Guest matthew222]

My thoughts:

1. I see no reason why they couldn't do this trade off. The more generic the statement you put into an employment contract, the more grey areas than can come up.

2. Medical reimbursements outside of a Section 105 plan are taxable.

3. I don't recall reading about any maximums for these plans, however, they cannot discriminate in favor of HCI's and there are eligibility rules as to who can participate based on the type of entity (partnerships, c-corps, s-corps, etc.).

4. Yes, unless of course you are providing reimbursements to people not eligible to participate or the plan is discriminatory in favor of HCI's (excess reimbursements).

Someone else that deals with MERP's on a more regular basis may want to chime in here.

[Chaz]

Partners can't participate in a Section 105 MERP.