Option to transfer/reduce vacation accruals to pay for employee medical contributions

[Guest ifarris]

Greetings,

I have searched previous board discussions and found very little information to my issue. I work for a non-profit and our bugdet is extremely tight.

My organization is exploring the option to allow the staff to apply vacation accruals to pay for their health insurance contribution (15% of the Health Premium).

My questions are:

1) Can we transfer the vacation accrual ($) to our fringes budget? Will this be consider part of wages? We would like to increase their take home pay but we only have a 52 week budget for wages.

2) If we decide to implement this option, Will this have to be done thru a Cafeteria Plan? Are they any other options?

We do have a FSA plan for Medical and Dependent Care reimbursement.

Your assistance and expertise to this matter is enormouly appreciated.

Thank you,

[Guest morris]

I think what you want to do is create a MERP (Medical Expense Reimbursement Plan), pursuant to sections 105, 106 of the IRC. You will be reimbursing/exchangeing insurance premiums, which are a legitimate 213 expense. This way, you will avoid W-2 income. The MERP will be outside of the 125 plan.

You will need a Plan Document and SPD and a Board Resolution adopting the plan.

You will want to write up an extensive, detailed set of rules of how the employee will do this (which will become a part of the SPD), and keeping in mind how you will administer it (how payroll will handle the request, etc).

Anyone else see anything I'm missing?