Benefits June 14, 2004

CO Workers to Get Expanded DC Options

June 14, 2004 (PLANSPONSOR.com) - Colorado Governor Bill Owens has inked a measure hiking state and local government contributions to its public retirement plans and expanded defined contribution options for new state workers.
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Sponsored by Colorado Senator Dave Owen and state Representative Brad Young, the measure (SB 257) passed out of the Legislature in May after a series of negotiations between the Board of Trustees of theColorado Public Employees’ Retirement Association (PERA) and Owens, according to information posted to the PERA Web site .

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According to PERA, the bill:

  • Establishes a choice of a DC plan for new state employees hired on or after January 1, 2006. State employees (excluding Higher Education) hired after that date would be able to select an expanded state DC plan, a new DC plan offered by PERA, or the existing PERA defined benefit offering. New hires would have 60 days to decide which plan to join. The default plan would be the PERA defined benefit plan.
  • Increases employer contributions to PERA by 0.5% of salary each year beginning January 1, 2006, to reach a total of 3% of salary by 2012
  • Increases the employer contribution rate in the School Division by an additional 0.4% of salary beginning in 2013, to reflect this Division’s higher cost
  • Requires employer contributions to be paid for a PERA retiree working for a PERA-affiliated employer, beginning July 1, 2005.

The PERA Web site material said Colorado becomes the fifth state to offer an optional retirement plan to broad groups of public employees. In recent years, Florida, South Carolina, Ohio, and Montanahave established such for many public employees.

In 1997, Michigan joined the District of Columbia in providing only a defined contribution plan for its general employees; teachers and most other non-state employees in Michiganand teachers and public safety personnel in DC continue to participate in a DB plan. Approximately 90% of all state and local government employees have a defined benefit plan as their primary retirement benefit.

Florida officials, in particular, have long struggled with getting employees to actively decide whether to go with a DC or DB option and unleashed a variety of programs in recent months including meetings and new literature to help make that happen (See Fla. State Workers DC Plan Still a Tough Sell ).

Compliance June 12, 2004

"Advance Reimbursements" and "Loans" For Uninsured Medical Expenses Are Gross Income: IRS

December 30, 2002 (PLANSPONSOR.com) - The Internal Revenue Service (IRS) has released Revenue Ruling 2002-80, stating any amount paid to employees as an "advance reimbursement" or "loan" for uninsured medical claims is not excluded from gross income under section 105(b) of the IRS Tax Code.
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All monies given to an employee as an “advance reimbursement” or “loan” are counted as gross income, and thus should have the appropriate employment taxes withheld, regardless if the employee incurred any uninsured medical expenses during the year.

The revenue ruling examined two possible scenarios an employer might encounter when determining the proper way to handle “advance reimbursements” or “loans.”

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Scenario One

An employer provides health coverage to its employees providing for accident or health coverage through a group health insurance policy.

The employer automatically deducts the cost of the coverage from its employees enrolled in the insurance, thereby applying the salary reduction amounts to the payment of the premiums for the group health insurance policy for the employee during the year.

To restructure the salary reduction for the group health insurance policy, the employer makes payments to an employee in amounts that cause the employee’s after-tax pay from the employer to be the same or approximately the same as what it would have been if there were no salary reductions to pay premiums for the group health insurance policy. These payments would be characterizes as “advance reimbursements” of the uninsured medical expenses.

Even though the payments are made as an “advance reimbursements” for payments to an uninsured medical expenses, those amounts are paid to the employee regardless of whether the employee incurs expenses for medical care or suffers a personal injury or sickness during the year.

The employers “advance reimbursement” plan is therefore not an accident or health plan because it is not an arrangement for the payment of amounts to employees in the event of personal injuries or sickness.

In addition, the exclusion from gross income under Section 105(b) applies only to amounts paid specifically to reimburse medical care expenses and does not apply to amounts that the employee would be entitled to receive regardless of whether or not the employee incurs expenses for medical care.

Any amount the employee received for uninsured medical expenses given in the “advance reimbursement” should be treated as additionally compensation with the proper tax withholdings taken from the employee’s gross wages.

Scenario Two

Similar facts as the first scenario, only the employer reimburses an employee’s health insurance premiums through “loans” rather than “advance reimbursements.” Although the employer characterizes the payments to the employee as “loans,” it is understood that the employee will never become obligated to repay any of the “loans”. Under this plan, when the employee submits uninsured medical claims, the employer treats the reimbursements as an offset against that amount of the “loans.”

The plan is implemented by making “loans” to the employee sufficient to cause the employee’s after-tax pay to remain essentially unchanged. The “loans” only become due and payable at the time the employee submits claims for uninsured medical expenses.

Again, the exclusion from gross income under Section 105(b) applies only to amounts paid specifically to reimburse medical care expenses and does not apply to amounts that the employee would be entitled to receive regardless of whether or not the employee incurs expenses for medical care.   Proper withholding should be taken out of the employee’s gross wages for the full amount of the loan.

A full text of the Revenue Ruling can be found at  http://www.irs.gov/pub/irs-irbs/irb02-49.pdf .

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