Plan Compensation and HSA premiums

[Dougsbpc]

A 401(k) plan considers plan compensation to be gross W-2 salary + section 125 contributions.

I dont believe HSA premiums should be added.

Does anyone agree / disagree?

Thanks

[PensionPro]

HSA contributions by employer not taxable to the employee are excluded from plan compensation.

[Dougsbpc]

What about HSA contributions contributed by employees?

[PensionPro]

From pg 9 of w-2 instructions: An employee's contributions to an HSA (unless made through a cafeteria plan) are includible in income as wages and are subject to federal income tax withholding and social security and Medicare taxes (or railroad retirement taxes, if applicable).

[Dougsbpc]

It is interesting. The plan definition of total compensation also includes "Deemed Section 125 Compensation". So even though the Employer HSA contribution is funded through a 125 plan and not taxable to the participant, it is counted as plan salary for all purposes. Revenue ruling 2002-27 allows this.

[MWeddell]

Is that last post correct? Note in post #4 the phrase "unless made through a cafeteria plan."

[PensionPro]

If employee contributions are made through a cafeteria plan, those amounts are not included in box 1 of the W-2 but are added to plan compensation if, as is the case here, the plan's definition of compensation includes 125 deferrals. Employer contributions made through a cafeteria plan would be included in the plan's definition of compensation as well in my view.

[QDROphile]

How can the employer the employer contribute through a cafeteria plan, other than the elected salary reduction amounts? If you you look at the plan as some pages with a staple, then the employer also contributes through a cafeteria plan to the extent the employer covers part of the premium cost of the health plan. Would you consider that part of the 401(k) defintion of compensation? Nothing happens under section 125 unless it involves a choice between cash (taxable) or a nontaxable benefit. That is the point of the 401(k) rule. Elective salary reduction is added back because the individual could have received cash and should not be penalized under the 401(k) plan by choosing the cafeteria plan benefit instead.

[PensionPro]

IRC Section 415(c )(3) compensation can, but is not required, to include "deemed Section 125 compensation." "Deemed 125 compensation" is defined as an excludable amount that is not available to an employee in cash in lieu of group health coverage under an IRC Section 125 arrangement because that employee is not able to certify that he or she has other health coverage. An amount is only "deemed 125 compensation" if the employer does not otherwise request or collect information regarding the employee's other health coverage as part of the enrollment process for the health plan.

[QDROphile]

What is your point about deemed section 125 compensation relative to employer funding of HSAs?