Members of the House Ways and Means Committee recently introduced the Optimizing Participant Tax Incentives through Optional Noncash Selections (OPTIONS) Act. This bipartisan legislation would codify and expand on the Flex Choice design that was approved by the IRS for an employer in Private Letter Ruling (PLR) 202434006. A press release on the OPTIONS Act and the bill’s text are available.
If enacted, the legislation would allow employers to establish a “Qualified Benefit Options Plan,” permitting current and former employees to direct their employer contributions to benefit programs that meet their specific needs. The contributions to eligible tax-favored employer-provided benefit programs would be allocated without triggering taxable income solely due to that choice. The available benefits would include:
- Nonelective contributions to a retirement plan
- Health savings account or health reimbursement arrangement contributions
- Qualified educational assistance benefits (including student loan repayments)
- “Other benefits which are excluded from gross income” under the Internal Revenue Code (IRC)
The last catchall category would greatly expand the benefit programs that could be made available in a Flex Choice program. For example, it appears that cash balance pension plans, dependent care assistance programs, healthcare premium reductions and employer contributions to Trump accounts could be added to a Qualified Benefit Options Plan. Employees would not be permitted to receive cash or any other taxable benefit.
Importantly, the proposed bill would also provide nondiscrimination testing relief for qualified retirement plans that are included in a Qualified Benefit Options Plan. It would do this by treating the Flex Choice employer contribution as if it were made to the qualified plan without regard to whether the participant elects to have any portion of the amount contributed to such plan.
A Qualified Benefit Options Plan would need to satisfy rules similar to those in IRC section 125 that prohibit discriminating in favor of highly compensated participants and key employees regarding eligibility and contributions and benefits. It appears that each of the underlying non-retirement benefit programs that are part of a Qualified Benefit Options Plan would remain subject to nondiscrimination testing rules under applicable IRC sections (e.g., section 105, section 129). The bill also adds reporting and recordkeeping requirements.
Going forward
The OPTIONS Act is at an early stage in the legislative process. Enactment this year seems unlikely, but the bill’s introduction and bipartisan support lay the groundwork for future consideration and enactment. The bill could possibly fit into a broader “SECURE 3.0” legislative package, which Congress could discuss during the 2027–2028 legislation session. It has not yet been introduced in the Senate.
If enacted, all employers would be permitted to expand choice and flexibility in their own benefit programs to better align employer contributions with their employees’ diverse needs and preferences (e.g., retirement, healthcare, education, childcare) without the need to obtain their own PLR and without having to consider potential qualified retirement plan nondiscrimination testing issues. The bill currently does not provide nondiscrimination testing relief for non-retirement benefit programs that are part of a Qualified Benefit Options Plan.
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