Deemed Section 125 Compensation is not the same as amounts contributed pursuant to a salary reduction which are not includible in gross income under Code section 125. Rather, it is amounts taken from a participant’s compensation to pay for group health insurance if the participant could not certify that he/she has other health coverage.
Meaning, if an employer does not request information regarding a participant’s other health coverage (no program to offer cash in exchange for not taking health insurance), then the employer can include the value of the health insurance as compensation under the plan for those that do not take the health insurance offered by the employer in Section A.15b of the Cycle 3/Post PPA document.
In the FTW document, if you include Deemed Section 125 in Statutory Compensation for all plan purposes in A.15b. and wish to exclude from Plan Allocation Compensation for certain sources, you can do so in Section A.16 “Other Adjustments” for the applicable source.
For more information on Deemed 125 Compensation, you can refer to Treasury Reg. 1.415(c)-(2) Compensation and also Rev. Ruling 2002-27.