Medical Waiver for Retirees

[mlbearu]

Our employer offers early retirement packages to qualified employees.  One of the benefits is a substantial medical waiver payment in lieu of retiree health insurance.  The employee gets the waiver for three years and then is offered the option to join the health insurance at the same benefit they would have had at retirement.

Medical waiver while employed is fully taxable to the employee.  Is it still so taxed as a non-employee benefit.  There is a Cafeteria 125 plan in effect but it doesn't address this issue.

[Brian Gilmore]

Any choice between (taxable) cash and (non-taxable) qualified benefits needs to be run through the Section 125 cafeteria plan to avoid constructive receipt.  In other words, to avoid all retirees being taxed on the opt-out cash option regardless of whether they enroll in the retiree plan.  

• More details: https://www.newfront.com/blog/the-section-125-safe-harbor-from-constructive-receipt

So the simple answer is to address this retiree opt-out credit election in the Section 125 cafeteria plan.