Cash credits

[Guest Joe Potosky]

I am working with an employer who currently pays for all benefits and is contemplating putting in a Cafeteria Style program. Assuming the employer intends to give each employee "benefit dollars" as credits to be applied against the cost of the employee selections,

1) Is there any restrictions as to the amount of benefit dollars that may be applied to each employee?

2) Can the employer require via the plan document that all "benefit dollars" allocated to an employee must be spent on a benefit option (ie insurance, FSA or 401k?) or must the employer allow the employee to take the unused allocation as cash.

[Sheila K]

Joe:

Where I work, we allow our eligible employees $250/month for benefit costs. If the employee "opts-out" of medical coverage, that allowance drops to $142.50 per month. The remaining amount can be used for dental, vision or flexible spending accounts. There is no "cash-out" option for the employees. The excess funds go to either a unreimbursed medical or dependent care flexible spending account, where the employee either uses the reimbursement or loses the benefit.

Employees may elect to add funds to their flexible spending account on a pre-tax basis, and again, per law, they will lose these monies if they are not used.

Good luck.

Sheila K

[Guest nb]

Cafeteria like plan? Section 125 by definition allow employees to choose between cash and a variety of employer provided beneftis without having to include the value of their chosen benefits as taxable income.

An option that would allow an allowance of unused $ to go to a deferred comp, mra, dep care account would seem to be advantageous to everyone.

Sheila, if I received no benefit for waiving my medical plan, why would I ever waive?

[This message has been edited by nb (edited 08-26-1999).]

[Lisa Hand]

A Section 125 Plan does not have to have a cash out option for benefit dollars unless it includes an option for unused benefit dollars to be used for 401(k), then a cash-out option must be included. It is quite common to discount the benefit dollars if they are cashed out since the whole point is for the employees to have a benefit not simply more compensation.

[Sheila K]

nb: If the benefit of coordination of benefits is non-existent, then I AM better off waiving my coverage. I also have a larger portion of $$ available for flexible spending. The way the plan is structured, the $250/month will cover medical, vision and dental, with about $17/month left over for flexible spending. If I waive my medical, my $142.50/month can ALL be used for flexible benefits. Since hubby & I both have only an HMO/PPO option with the same co-pay, our benefit coordination is next to nothing and a lot of work for little result. I'm better off submitting my co-pay to unreimbursed medical! In addition, those funds can be used for dependent care as well, so MY contribution to that expense can be decreased!!!

So, depending on your situation, there definitely IS a benefit for waiving coverage. We do require that you prove other coverage, as we don't want our employees completely without medical coverage.

That's my story and I'm sticking to it!!!

------------------

Good Luck!!!

Sheila K 8^)

[GBurns]

What do you mean by the "benefit of coordination of benefits"??

[Sheila K]

GBurns:

Sorry about that...my old dental claims paying days still show through!! If I have an 80/20 plan for medical, AND my spouse has an indemnity plan as well, then HIS plan would pay the 20% that mine wouldn't. HOWEVER...if we both have an HMO-type plan, then I will pay my $5-10 copay and be done with it. There would not be any benefit coordination there for me.

Let me know if I've just muddied the waters more!

------------------

Good Luck!!!

Sheila K 8^)

[Guest lee kazee]

Can someone plese shed light on how an employer establishes the flexible credits? Is "a percent of salary" less common than the amount being determined by"family status"?

[This message has been edited by lee kazee (edited 02-07-2000).]