Paying the rebate to participants as cash.
Cash to employees or subscribers is an option named in carrier rebate letters and in the Department of Labor guidance. It needs a fair method and a look at the tax effects.
What the letters and the guidance say.
Named by Carriers and the Department of Labor
Carrier letters state that governmental and church plans may provide a cash rebate to employees or subscribers, and the Department of Labor guidance recognizes cash distribution as an option for ERISA plans.
A Fair Allocation Method
Where the rebate is a plan asset, the Department of Labor says the person in control is a fiduciary and the allocation method should be reasonable, fair and objective.
Tax Effects May Apply
The Department of Labor notes cash may create tax consequences for participants or the plan and expresses no view on tax. Carrier letters say tax treatment varies and point to a tax professional.
Three steps for the employer.
Choose the Allocation Basis
Decide how each person’s share is figured, usually tied to the premium they paid, and apply it the same way to everyone.
Mind the Timing
The Department of Labor says relief from the trust requirement for certain plans depends on using the rebate within three months of receipt to pay premiums or refunds. Ask your adviser whether that applies.
Tell Employees What and Why
Explain the amount, the method and the date in plain language. Employees are told by the carrier to contact the employer.
Three questions to settle first.
Who Is Eligible for Cash?
Ask which participants from the rebate year should receive a share, including former employees.
How Is Each Share Figured?
Ask your adviser to confirm the formula matches the premium each person paid.
What Are the Tax Effects for Recipients?
Ask your tax professional how cash payments should be handled and reported.
Send us your renewal.
We’ll tell you whether it looks competitive, where we see opportunity, and the five questions we’d put to your carrier. No cost, and no obligation to move anything.
The renewal letter
Your current plan summary
Contribution split by tier
Enrolled counts by tier
Four documents — two more if your group is 50 or more. Nothing else; every extra one is a reason to postpone.
An independent employee benefits consulting firm. We look at the entire benefits program: cost, plan performance, risk and administration.
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