Compliance & Structure

REGULATORY FRAMEWORK

Organizations considering any payroll-related benefit strategy often ask the same question:

“How do we know the program is legitimate?”

The Self-Insured Medical Reimbursement Plan (SIMRP) is not based upon a single IRS provision, interpretation, or isolated tax position.

Rather, the program is structured within an established framework of federal laws and regulations that govern employee benefits, medical reimbursements, cafeteria plans, payroll tax treatment, and employer-sponsored benefit programs.

These frameworks include Internal Revenue Code Sections 105(b), 106, 125, and 213(d), together with ERISA governance requirements, formal plan documentation, substantiation standards, and third-party administration.

The objective is not simply to create tax savings.

The objective is to provide a structured employee benefit that operates within established regulatory requirements while creating value for both employers and employees.

IRC SECTION 105(b)

IRC Section 105(b) addresses the tax treatment of qualified medical expense reimbursements provided through an employer-sponsored accident and health plan.

Under this section, qualifying medical expenses may be reimbursed through a properly structured plan when those expenses satisfy applicable requirements and are supported through appropriate administrative procedures and substantiation.

Section 105(b) serves as one of the foundational components of the SIMRP structure.

The purpose of this section is not to create a new benefit category, but rather to establish how qualified medical reimbursements may be administered within an employer-sponsored framework.

IRC SECTION 106

IRC Section 106 addresses the tax treatment of employer and employee contributions to qualified accident and health plans.

This section provides important guidance regarding how qualifying contributions may be made within a structured employee benefit arrangement.

When combined with other applicable provisions of the Internal Revenue Code, Section 106 helps establish the framework through which qualified health-related benefits may be provided and administered.

Together with Sections 105(b), 125, and 213(d), this provision contributes to the overall structure supporting the program.

IRC SECTION 125

IRC Section 125 governs cafeteria plans and allows eligible employees to elect certain qualified benefits through a formal written plan.

Section 125 has been a long-standing component of employee benefit planning and is widely used throughout the United States by employers of all sizes.

The section establishes the framework through which certain qualified benefits may receive favorable tax treatment when administered through a compliant plan structure.

Formal documentation, participant elections, administrative procedures, and ongoing plan operation are important elements of maintaining compliance with Section 125 requirements.

IRC SECTION 213(d)

IRC Section 213(d) defines what constitutes a qualified medical expense for purposes of reimbursement and tax treatment.

The section includes medical expenses associated with the diagnosis, treatment, mitigation, prevention, and management of medical conditions, together with other qualifying healthcare expenses identified under applicable IRS guidance.

Section 213(d) is important because it helps define the categories of medical expenses that may be considered eligible within a properly administered plan.

The determination of eligibility is governed by applicable rules, documentation requirements, and administrative review procedures.

ERISA GOVERNANCE

SIMRP operates within an employee benefit environment that includes ERISA governance and oversight.

ERISA establishes requirements relating to plan operation, fiduciary responsibilities, participant protections, documentation standards, disclosures, and administrative procedures.

Compliance is not achieved through marketing materials or verbal representations.

Compliance is achieved through documented processes, formal plan structures, administrative controls, and consistent plan operation.

For employers, ERISA governance helps provide a framework for accountability, transparency, and long-term program sustainability.

PAYROLL TAX TREATMENT

One of the reasons organizations evaluate programs such as SIMRP is because of the payroll tax treatment associated with properly structured employee benefit programs.

The payroll tax treatment is not created by a special exemption or temporary government program.

Rather, it results from the application of long-established provisions within the Internal Revenue Code governing qualified employee benefits and plan administration.

This distinction is important.

The program is designed around existing sections of federal law that have governed employee benefits for many years.

As with any employee benefit arrangement, proper administration, documentation, and compliance procedures remain essential.

PLAN ADMINISTRATION

A compliant program requires more than simply referencing IRS code sections.

The program must be supported through formal plan documentation, established administrative procedures, substantiation requirements, eligibility standards, and ongoing oversight.

Independent third-party administration plays an important role in helping ensure that plan operations are conducted consistently and in accordance with applicable requirements.

Administrative processes may include:

Plan documentation
Participant enrollment procedures
Eligibility administration
Substantiation review
Compliance oversight
Record retention
Ongoing plan support

These processes help create a structured environment designed to support both compliance and operational consistency.

INDEPENDENT REVIEW & PROFESSIONAL ANALYSIS

The concepts underlying programs such as SIMRP have been the subject of professional review, legal analysis, and industry discussion.

Relevant discussions have included independent legal review, analysis of applicable IRS provisions, and publications discussing the structure of health and wellness reimbursement arrangements within established regulatory frameworks.

Organizations evaluating any employee benefit program should conduct their own review and consult with their advisors regarding applicability to their specific circumstances.