A recently issued Private Letter Ruling (PLR 202434006) caught our attention. It might be of interest to employers who want to allow employees to design their benefits to meet their specific needs. Importantly, a PLR is only binding on the taxpayer who requests it, but it does indicate how the governing agency reviews these matters.
The taxpayer requesting the PLR asks whether an employer contribution (not salary reduction dollars) can be contributed to various plans without jeopardizing the qualified status of the plans. Note, the plans in question are 401k plan, a retiree health reimbursement arrangement, a health savings account, and a Code Section 127 educational assistance program. In a nutshell, the IRS states that as long as the individual makes an irrevocable election to have employer dollars allocated to the program or programs of the individual’s choice prior to the beginning of the plan year, the employer contribution will not, in the case of the 401k plan, become an elective employee contribution. It will remain an employer contribution to the retiree HRA, an employee’s HSA, or the educational assistance program as elected by the employee without jeopardizing the status of the applicable program. Importantly the allocation of employer dollars can only be for the prescribed benefit programs and each program must be operated in accordance with the rules governing the particular program.
Notably, the PLR provides that the educational assistance program can, if the plan so provides, reimburse qualified student loans. The CARES Act amended Code Section 127 to allow qualified student loans to be reimbursed from an educational assistance program through January 1, 2026. See prior Benefit Beat article here.
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