Bonus or med/dental expenses?

[chris]

Employer wants to put plan in place whereby e/ee's can choose between year-end bonus or medical/dental expense reimbursement. First, employer will need to adopt 1)a cafeteria plan and 2) a medical/dental expense reimbursement plan(FSA?), correct?

Second, is it as simple as providing in the cafeteria plan document that the employer will make discretionary contributions only (i.e., bonuses)and that e/ee's can elect to either receive said bonuses or direct that said amount go towards an FSA in their name?

Third, despite the fact that the bonus will be entirely discretionary are there any constructive receipt issues since the bonus will be based on services performed previously?

I mainly deal with profit sharing and pension plans so any help would be greatly appreciated.

Merry Christmas!

I recently ran across Reg. 1.105-11(b)(1) which indicates that the reimbursement plan would need to be a separate written document from the cafeteria plan document. My main question deals with the drafting of the specific provision re: bonus or med/dental exp reimbursement.

Thanks again...

[This message has been edited by chris (edited 12-17-1999).]

[SLuskin]

In a Cafeteria plan, you have to make your election prior to the start of the plan year. You cannot change your election without a change in status- an employer bonus not being a status change. Employers can always make discretionary contributions to the plan, but these are made prior to the start of the year and not at the end of the year. I don't really see how to combine these 2 issues.

[chris]

Thanks for your reply.

The only thing I can see is possibly allowing the e/ee to make an election to reduce salary prior to the beginning of the year with the understanding that the e/er may give a year-end bonus. The employer is a medical practice so the ability to give out bonuses is not a problem. One practical problem if I'm the e/ee is that I'm reducing my salary per pay period (assuming I want the med/dental reimbursement account) with the expectation, and nothing more, that I'll get a year-end bonus.

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