Section 105 Reimbursement plans

[Guest Wislndixie]

I have been read alot about Section 105 medical reimbursment plans being established for small employers..It seems they can be somewhat discriminatory and don't follow the "use it or lose it" rules as in a 125 plan. Can the experts here comment on the 105 plans, how are they different from 125's etc. Thanks.

[Guest Joe Vasko]

IRC Section 105(h) - Medical Expense Reimbursement - is one portion of a benefit that can be provided under a Section 125 Plan. A Section 125 "Cafeteria" Plan allows participants the opportunity to select amoung various nontaxable benefits, but must offer at least one taxable benefit (usually cash). These plans are subject to the nondiscrimination rules found under Section 125 of the IRC. In your case, the 25% Concentration Test would have to be met. No more than 25% of the benefits may be provided to key employees (IRC Section 416(i)).

A Section 125 Plan must be in writiing and communicated to employees. In addition, they are required to file Form 5500 and Schedule F with IRS each plan year.

Hope this helps.

[SLuskin]

I also read something about that Section 105 Plan outside of a Section 125 Plan. It looked like it could be entirely discriminatory. I didn't really understand the provisions, but they are out there.

[Joe Priselac]

Wisindixie,

Your reading should have included the Internal Revenue Code because under Section 105(h) there are several paragraphs that describe the nondiscrimination rules that govern these self-insured plans. All self-insured medical, dental, vision plans are enabled by Section 105 and must comply with the nondiscrimination rules of that code section. As an example, I had a large medical group(300 employees) with a self-insured dental plan that covered all full time employees. The doctors wanted to change the eligibility to only themselves(56 doctors). We canceled the self-insured dental plan and installed a fully insured plan for the doctors only because a fully insured plan can discriminate in ways that Section 105 would not permit. If you would like a copy of the relevant code sections, e-mail your fax number to me.

[Alf]

The description of a 105 "reimbursement" plan in the intial post is wrong. These self-insured medical plans are just like insurance from the participants stand point. It is not use it or lose it, just lose it. If you pay premiums for coverage under a 105 plan, the money is gone, just like an insurance premium. If your health expenses are twice what you paid in premiums, the excess is made up from other participant's premiums or from stop-loss insurance coverage that the plan sponsor purchases.