3.96 W. Cafeteria And Flexible Pay Plans

1. Section 125 Cafeteria Plans

Cafeteria plans may be established under Section 125 of the Internal Revenue Code. Unless an employer acts to allow reporting, compensation paid under a cafeteria plan is not reportable to IMRF.

A Section 125 cafeteria plan is an employer-sponsored plan set up in compliance with Section 125 of the IRS code that allows members to pay certain eligible expenses (i.e. health) using pre-tax funds.

This plan allows employers to offer a choice of salary or specified nontaxable fringe benefits from which participating employees may select. The plan may be funded with employer contributions, employee contributions (deducted from an employee's paycheck before taxes are paid) or a combination of both.

A suggested form for a resolution to include cafeteria plan compensation in IMRF earnings is shown in Form 6.72,  "Suggested Resolution to include Compensation paid under an Internal Revenue Code Section 125 Plan as IMRF earnings" (Exhibit 3A). This resolution, when adopted, may not be changed or revoked for current employees but only for new hires.

2. High Deductible Health Savings Accounts (connected to high deductible insurance plans)

Employer contributions to Health Savings Accounts or other plans to reimburse employees for medical expenses not covered under a high deductible health insurance plan are not reportable to IMRF.

If the employer wants to report to IMRF the compensation directed into the Health Savings Accounts or other plans by the employee, its governing body must let IMRF know by adopting a resolution, Form 6.72, “Suggested Resolution to include Compensation paid under an Internal Revenue Code Section 125 Plan as IMRF Earnings,” Exhibit 3A.

3. Retirement Health Savings Plans

Retirement Health Savings Plans are employer-sponsored health benefit savings vehicles that allow pre-tax savings for the cost of medical expenses (health insurance premiums, co-pays, prescription costs, etc.) after retirement.

Contributions to a Retirement Health Savings Plan are not included as IMRF earnings, and therefore not reportable to IMRF.

If the employer wants to report to IMRF the compensation directed into the Retirement Health Savings plan, its governing body must let IMRF know by adopting a resolution, Form 6.73, ”Suggested Resolution to Include Compensation Directed into a Retirement Health Savings Plan as IMRF Earnings,” Exhibit 3B.

4. Other Flexible Pay Arrangements

Compensation directed into a premium conversion plan or flexible spending account is not IMRF earnings unless the employer elects to include it in earnings by governing body resolution.

A suggested form for a resolution including premium conversion plan or flexible spending account compensation in IMRF earnings is shown at Exhibit 3A. This resolution, when adopted, may not be changed or revoked for current employees but only for new hires.

5. Cash Related to Health Insurance

Either of the following payments related to health insurance or healthcare benefits are IMRF reportable earnings, provided that an IMRF employer’s governing body passes a resolution allowing cash payments for health insurance to be reported as IMRF earnings.

If an employer offers cash payments in lieu of or related to healthcare benefits as mentioned above, the employer is required to pass a resolution allowing cash payments for health insurance to be reported as IMRF earnings. The resolution must be kept on file with IMRF. The employer may use IMRF Form 6.75, “Suggested Resolution to Include Cash Payments Related to Health Insurance as IMRF Earnings” or the governing body may draft and adopt their own resolution that is consistent with IMRF Form 6.75.

Please see Exhibit 6BBB, Form 6.75 “Suggested Resolution to Include Cash Payments Related to Health Insurance as IMRF Earnings.”

Read more in the FAQ: Board Resolution 2017-12-17, Cash Payments in Lieu of or Related to Healthcare Benefits.

If an employer's governing body does not adopt a resolution to allow IMRF reporting, any cash payments made separately from salary in lieu of or related in any way to healthcare benefits cannot be reported as IMRF earnings.

This does not apply to employers that do not offer cash payments nor intend to offer cash payments in lieu of or related to healthcare benefits as mentioned above.