IRS PLR Blesses Employee Choice Between Retirement, Health and Education Benefits

by Prof. Robert Bloink and Prof. William H. Byrnes

Employers have long searched for ways to offer flexibility when it comes to their employment benefits structure. It’s common for employers to offer an employer matching contribution when employees fund 401(k) plans and other types of defined contribution retirement plans. Many other employers offer health savings benefits or education benefits. That said, certain types of benefits are more valuable and desirable to certain groups of employees—and employer resources are always limited. Now, the IRS has blessed a scenario where an employer actually allows their employees to make their own choices with respect to where to allocate valuable employer contributions to various types of tax-preferred accounts.

What Tax Issues Arise When Employees Can Allocate Between Benefits?