IRS Ruling Allows Employers to Allocate Contributions to Various Types of Accounts

A recent IRS private letter ruling (PLR) clarifies that employers are permitted to allow employees to elect to allocate employer contributions among health, retirement and student loan benefits.  The PLR allows employer contributions to be allocated among defined contribution plans, retiree health reimbursement arrangements (HRAs), health savings accounts (HSAs) and student loan benefits under qualified educational assistance programs.  The IRS has ruled that such a choice would not cause violation of the constructive receipt doctrine, which becomes an issue when an employee is given a choice between taxable (i.e. cash compensation or 401(k) contributions, which are taxable when withdrawn) and non-taxable benefits (including HSA contributions).  Pursuant to the PLR, employees would be given a chance to make an irrevocable election during open enrollment.  In no event could the employee receive cash or taxable benefits not addressed within the PLR.  For more information on the constructive receipt doctrine, visit Tax Facts Online. Read More: Link to Q662.  Note: Q is updated.