125 Plan for COBRA Premiums

[Guest Sandy Bullock]

All employees of a "start up" company are on COBRA from their previous employers. All employees are highly compensated. There are no non highly compensated employees. Can a 125 plan be established to cover the COBRA premiums? If so would the plan go into effect on the date adopted or could it be made retroactive? Is there special wording for the plan document?

[Lisa Hand]

Without addressing the rest of the question, retroactive establishment of a plan would violate the regualtions and disallow the plan.

[Guest CBoudjouk]

As far as premium conversion goes, Section 125 only allows the premiums for the employer sponsored plan. In terms of flexible spending accounts, I don't think that insurance premiums are an allowable expense.

[Lisa Hand]

Individual Health Insurance premiums can be run through a Section 125 plan as a separate reimbursement category for just individually owned insurance premiums. They may NOT be run through the Medical FSA.