Defined Contribution Flex Benefits

Defined contribution benefits that spend flex credits are unique because the amount of flex credits the employee spends on the benefit has to be included in the employee's social and Medicare taxable wages. To accommodate this, the Benefits Administration application creates a standard time record offset with a 401(k) deduction. The Payroll application calculates the taxes.

Each defined contribution plan under a flex plan has a unique flex pay code. Like all other benefits, if an employee spends flex credits on a defined contribution plan, the Benefits Administration application does the following to show the flex credits spent.

  • Reduces the employee's available flex credits

  • Reduces the employee's flex standard time record

Unlike other benefits, the Benefits Administration application does the following to include flex credits in the employee's social and Medicare taxable wages.

  • Creates a standard time record equal to the number of flex credits spent on the defined contribution benefit

  • Creates a 401(k) deduction equal to the entire contribution. If both flex and pretax dollars are contributed to the defined contribution plan, the Benefits Administration application creates a 401(k) deduction that includes both the flex credit and pretax dollar amounts.

For example, Walter has $1,000 flex credits and $5,000 pretax dollars to spend on benefits. For Walter's $1,000 flex credits, the Benefits Administration application creates a standard time record for $19.23 ($1,000/52).

Walter contributes $1,500 to a 401(k) plan. To do so, he uses all of his flex credits and $500 pretax dollars.

The Benefits Administration application

  • Reduces Walter's available flex credits to zero

  • Deletes Walter's standard time record because he used all of his flex credits

  • Creates a standard time record using the defined contribution's flex pay code for the flex credits Walter spent on the 401(k) plan [the amount of the standard time record is $19.23 ($1,000/52)]

  • Creates a 401(k) deduction equal to the flex and pretax dollars Walter spent on the 401(k) plan. The amount of the deduction is $28.85 ($1,500/52)

Walter's $1,000 flex credits, which he spent on the defined contribution benefit, are included in gross wages. The 401(k) deduction reduces all taxable wages except social and Medicare.