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Discrimination Testing - Multiple health plans


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Is it possible for a large controlled group to offer different (self-funded) health plans at its different locations or to diffirent branches of the company without violating the nondiscrimation rules? Similary, can they vary benefits based upon salaried or hourly status at the locations? Seems like many employers do this but I can put my finger on how they make it work. If testing is done on a controlled group basis, how does this work?

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Self-funded plan testing under 105(h) is done on a controlled group basis but I can't answer as to the "how" since in my experience that testing is often ignored and not something the IRS has ever focused on as an audit initiative.

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I think that you should explain further the problems that you see, especially those relate to the nondiscrimination rules.

As far as I know, the controlled group rules only apply in that the companies have to offer the same sort of benefits at each company within the group. It does not mean exact but type of benefits.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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  • 1 month later...

Actually, 105(h) does mean exact type of benefits, as far my colleagues and I can tell. It also means contribution rates, eligiblity, waiting period, and the like. See, however, the exception under 1.105(h)-11©(4). Honestly, though, I'm never sure what to make of that rule.

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  • 3 weeks later...

Unfortunately, this is a topic that needs a good bit more regulatory clarification and discussion in general. I'm not an expert in this but a couple of things to keep in mind: (1) the nondiscrimination rules will generally allow particular plans to discriminate a good bit in terms of coverage / exclusion and (2) with regard to the benefits tests, my understanding is that many think plans can be disaggregated for testing purposes such that different plans are maintained at different geographic locales and/or for certain distinct classifications of employees, etc. such that as long as no HCEs receive more or better benefits than NHCEs within a particular plan it should be okay even if that means that an HCE in one plan / group receives better benefits than an NHCE in another plan or group on a controlled group basis. Again, not an expert and the actual testing of plans is so rare that I've not really seen that play out but that is my general understanding of how some think they can get there.

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The key is taking each plan in the group and passing the eligibility test in 1.105-11©(2). You drill down and you can use the reasonable classification test under 410(b) to do this.

Once you pass eligibility testing then the test for nondiscriminatory benefits only applies to participants in that particular plan and not all plans.

Further if you have discriminatory benefits in the same plan then the last sentence of 1.105-11©(4) lets you provide in the document that those separate benefits will actually be considered separate plans. Then if you pass eligibility when treated as separate plans you should be ok with separate benefits.

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