IRS PLR Grants Additional Flexibility for Employer Contributions

A private letter ruling issued by the Internal Revenue Service allows the inquiring taxpayer to offer a discretionary employer contribution that employees can choose to direct to either their 401(k) plan, health savings account, retiree health reimbursement arrangement, or education assistance program. Employees are not permitted to elect to have the employer contribution paid in cash. The proposed amendments to each of these arrangements would provide for an irrevocable annual election and preserve the tax status of the contribution under each of the arrangements.

While the ruling is directed only to the party requesting it, the individual flexibility the design affords to employees may be worthy consideration for other plan sponsors.