I spoke to an employer recently about their health plan. They just changed to a higher deductible plan and have decided to reimburse employees a portion of their deductible expenses. I mentioned to them that they needed a sec 105 plan document in order to do what they wanted to do and not have the payments counted as compensation (subject to FICA and taxable to the employee). I explained there was a right way to do employee reimbursements and a wrong way and if they didn't do it correctly, there were potential penalties and back taxes. They were unsure of what I was telling them and wanted a legal or code reference. Does anybody know of a reference that would include the penalties, tax implications.

IRS Pub 15-B discusses the exclusion from wages of Accident & Health Benefits and it says that the plan does not need to be in writing. Of course, you probably then also have an ERISA plan which does need to have a written doc, to my knowledge.

According to ERISA Sec 402(a) and 402(b), the plan has to be written.