Discriminatory Fringes

[Edsel]

The language with which we are familiar from section 125 is clear about discrimination in the provision of fringe benefits.  The application of benefits can be somewhat stratified, but are not supposed to discriminate in favor of individuals.

Yet companies routinely establish an elite class of benefits for executives.  Sometimes the medical insurance benefits carry a separate policy which pays better and with lower co-pays.  Sometimes there is no employee participation for the chosen few, whereas other employees have to pay thousands of $$ over the course of the year.  Immediate matching in retirement plans such as 401k, whereas lower-paid employees have a six-month period to vest.  I can go on and on. 

The practice is widespread among medium-size and large-size companies.  And the providers of benefits push these special plans.

Comments please, as to how they are getting away with this.  Thanks.

 

 

[ILLMAS]

I feel the same way when it comes to bringing in food for a work event, everybody brings in the cheapest/homemade plate, but when the company buys the food, people take advantage and over eats.

[Edsel]

It may be that no one knows why they're getting away with it.  Zero replies which address the problem.

[Gail in Virginia]

Perhaps they are not getting away with anything.  Those fringes that don't qualify due to non-discrimination requirements are just not considered non-taxable fringes and either the company or the recipient is probably being taxed on them.  The fact that the company cannot deduct the expense doesn't mean they cannot provide the benefit.  They may feel that the benefit of retaining top people is more advantageous than the cost of non being able to deduct the expense.  Since I don't prepare taxes for large corporations, I can't say for sure.

[Edsel]

Thanks for responding Gail. 

Under section 125, there is a rare provision that the taxpayer CAN deduct the expense, but the employee does not have to claim it as income.  This is rare indeed.

From what you're saying, perhaps employees covered by these "elite" plans must pay on the premiums and thus not qualify under section 125.  I agree with you and this would make sense, but my association with medium-sized companies is such that they have their W-2s reduced under s. 125 nonetheless. 

The only exception I've seen is for a 2% shareholder of a Sub S.