design of plan/cash out

[Guest ASM]

I work for a small nonprofit org. The benefits are casual/ad-hoc. They work like this: each employee is given 10% of salary additional to salary to spend on benefits of their choice (health, life, disability, etc.) The org. pays all premiums. If the 10% amount is not used in full, the remainder is given in cash back to employee. Has anyone ever heard of this kind of thing?

[GBurns]

In S. Florida some of the larger employers have a variant of this. they give a benefit credit of $x, if the employee does not use it all, there is then the choice of having an "amount" credited to the 401(k), if they have one, or taking an "amount" as taxable income. This "amount" is usually less than the unused credit to discourage it.

[Linda]

This sounds like a type of cafeteria plan. The employee's choice is between a non-taxable benefit and cash.

[Christine Roberts]

I was just about to post a message on this identical arrangement, except in my case whatever portion of the 10% that employees did not allocate towards nontaxable benefits went to a 403(B) plan - cash was not an option. In cleaning up this arrangement (i.e., installing 401(k) and flex plans)employer wants to limit the cash benefit to a small portion of the $$ amount that would be available for nontaxable benefits - what has been your experience in structuring plans so as to greatly limit the cash benefit that would be available (e.g., to 10% or 5% of the nontaxable benefit budget)?

[Guest nb]

Until recently, all employees were given $x dollars to purchase medical insurance. Amount was based on bargaining unit. If premium of medical plan was less then the subsidy amount the difference was available to the employee in the form of cash back. Recent negotiations have removed the cash back arrangement for new hires. Those that had cash back keep cash back. It makes for interesting administration!! We have 11,000 employees total with about 1500 being non cash back employees.

[GBurns]

nb .. Didn't this present a discrimination issue ?

[Guest Marcia Bennison]

I have a small nonprofit client with a plan similar to what ASM described except there is no option to get cash instead of benefits, and medical expenses may be reimbursed in addition to premiums paid. Without a cash option, it apparently does not meet the definition of a cafeteria plan under IRC Sec. 125, but I believe it is subject to ERISA. My concerns: is the client meeting ERISA requirements and is a 5500 required to be filed?

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Marcia

[Guest Jae]

If the plan provides reimbursement for medical expenses, as opposed to just insurance, it runs into trouble with Reg 1.105-11©3 which prohibits reimbursement plans from using a percentage of compensation as a cap for the benefits.

jeff

[Guest nb]

GBurns, Benefits are negotiated with the various unions for our employees. The design of the cashback was signed off by the attorneys and unions.

Where do you see the discrimination, maybe we've missed something.

[Joe Priselac]

nb,

You're fine. Collectively bargained flex plans do not have to follow the normal nondiscrimination rules.