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Question 10 — Choosing Between Health Benefits and a 403(b)

Q. I am working with a public school superintendent to include retirement benefits in his individual contract. In looking at the contract wording the district plans to use, I see that they have given the superintendent a choice of medical insurance OR an employer contribution to the 403(b) plan. I seem to recall there could be a problem with this one.

A. A choice between a non-taxable benefit (the medical insurance) and a non-elective contribution to the 403(b) plan (deferred compensation) would cause the health insurance benefit to be taxable under the constructive receipt doctrine. There is an additional risk of inadvertently creating a Code Section 125 plan in which employer contributions to a 403(b) plan are not permissible. They should not permit the superintendent to have a choice between those two benefits. 

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