Section 105 Plans
A Section 105 plan lets businesses reimburse employees for medical and insurance expenses incurred by that employee or his or her dependents. The most common type of Section 105 plan is a self-funded (or self-insured) health plan, where the employer has chosen to self-fund (or self-insure) health benefits rather than pay premiums to an insurance company. Section 105 plans are also frequently found in the form of Health Reimbursement Arrangements. A businesses might also implement a Section 105 plan alongside with a conventional employer sponsored Florida Health Insurance plan (to reimburse amounts not covered by insurance) or as a stand-alone medical reimbursement plan (to reimburse amounts for out-of-pocket Forida Health insurance premiums).
What are Advantages of Section 105 plans?
Section 105 plans offer a few advantages to both the employer and the employee. All reimbursements are 100% tax deductible by the business and its employees. When designing a Section 105 plan, the business has a great deal of flexibility, such as establishing maximums amounts for reimbursement and establishing eligibility requirements for participation. The greatest advantage to employees is that a Section 105 plan reimbursement is not considered taxable income.
Can a Business Self-Administer a Section 105 Plan?
Yes, but most experts do not recommend doing it without proper IRS/HIPAA/ERISA administrative software.Many employers that self-administer a Section 105 plan frequently overlook vital compliance obligations that put them at financial risk. Failure to comply with the following requirements can be costly:
- COBRA – A Section 105 plan is subject to COBRA rules.
- HIPAA Privacy – A Section 105 plan is governed by HIPAA Privacy rules.
- Medicare Reporting – A Section 105 plan is subject to Medicare Secondary Payer (MSP) provisions.
- Legal Plan Documents – ERISA requires that Section 105 plans be established and maintained pursuant to a written instrument.
What are the Section 105 Nondiscrimination Rules?
Section 105 nondiscrimination rules require that the plan must not discriminate in favor of highly compensated individuals with respect to eligibility to participate in the plan or benefits provided with the plan.
How Does a Section 105 Plan Work?
Section 105 plans are quite simple.
- The business must establish a formal written Section 105 plan.
- The business determines the amounts available to each employee for reimbursements during a period of coverage (usually one year).
- As eligible expenses are submitted, the business reimburses the employees (100% tax-free) up to the available amounts.
- Unused funds at the end of the year are usually carried over to the next year.