Opposite-sex domestic partner - health insurance premium taxation

[Belgarath]

Have a client where plan defines compensation for plan purposes as W-2. A client is insisting that opposite sex health insurance premium, while taxable, shouldn't be considered as compensation for plan purposes, based upon their "research."

I can find no basis for this whatsoever, and I'd just like to see if anyone knows of something I'm missing? They could amend the plan to exclude such compensation for plan purposes, but that is a separate issue - plan does not currently contain such an exclusion...

Thanks.

[mbozek]

I have not researched the question but I thought a general principle of taxation under IRC 61 and the regs is that anything an employer provides to an employee in the form of money or property was taxed as income unless excluded. If the health ins is provided in return for services it is considered to be w-2 income. I don't know what else it would be classified as. Maybe the answer is in PUb 17 which has an extensive discussion of taxation of employer provided health insurance.

[Peter Gulia]

If the retirement plan's administrator relies on an incorrect measure of compensation for this participant, how would it affect the administration of the retirement plan?

Would a too-low measure of compensation result in this participant getting an allocation of a nonelective contribution less than she is entitled to?

Would a too-low measure of compensation result in this participant getting an allocation of a matching contribution less than she is entitled to?

Would a too-low measure of compensation distort an ADP test, ACP test, or other measure of coverage or non-discrimination?

Is something else affected?

Focusing on what plan-administrator error could result from a mistaken measure might help your client spot a problem or exposure (or see a need for a plan revision).

Or if the measure of compensation doesn't affect anything (which might be so concerning plans in some circumstances), it might be unnecessary to use any measure of compensation.

[Effen]

I agree that it is probably compensation, but why not amend the plan to exclude it like the PA wants, then make sure it satisfies the applicable non-discrimination rules.