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Different eligibility requirements for different employee categories


Guest aearle

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Guest aearle

Can an employer designate different eligiblity requirements for exempt vs. nonexempt in a cafeteria plan doc? For instance 1st of month following 30 days for non-exempt and 1st of month following 90 days for exempt? How about for full-time and part-time, etc.?

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Yes. An employer can be discrimatory on a class basis and this is extremely common. What the employer can't do is have a longer waiting period for employees over age 40, or for a protected race or for anyone who's last name begins with the letters A, H and P.

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Sorry, I don't agree. Section 125(g)(3)(B)(i) says that if the plan has an employment requirement in order to be eligible to participate, it must be the same for all employees.

For example, you can exclude part time employees if you wish, but if you include them, they can't have a longer waiting period than fulltime employees. Also, you can't have managers or salaried eligible at 30 days, and hourly or bourgeois eligible at 90 days in the same cafeteria plan.

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Section 125(g)(3)(B)(i) does apply. However, the ruling begins, "...if the plan benefits a group of employees described in section 410(B)(2)(A)(i), and meets the requirements of clauses (i) and (ii)." Section 410 addresses fair classifications of employees. As long as all employees within a classification have the same waiting period, you are within 125. A company can have multiple waiting periods (correctly called probationary periods, as discussed in a previous thread), as long as they are divided among classifications of employees.

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Guest aearle

Thanks for the feedback. Another source I asked said that you can't differentiate eligibilities between hourly and salaried, but can between a) full-time and part-time, b) under age 21, and c) seasonal. There seems to be a lot of confusion on this one. I welcome more feedback! (And are the terms hourly and non-exempt interchangeable -- and salaried and exempt?) Thanks.

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I'm not sure where you're getting your info SLuskin. As indicated previously, you can differentiate between classes of employees. Hourly can be considered a class, salaried can be considered a class, seasonal can be considered a class, exempt can be considered a class and so on. You can't have a different waiting period for employees under 21. That's age discrimination.

Hourly and non-exempt should not be used interchangeably since you can have a salaried non-exempt employee. Salaried and exempt can be, however, I would recommend using exempt and non-exempt to avoid any confusion since you can have some overlap if you simply indicate hourly or salaried.

Feel free to send me an email if you wish to discuss further.

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You can separate employees for "classification" purposes by hourly and salary (yes, non-exempt and exempt can be used in their place), full-time and part-time, and seasonal and permanent. There are more, but the underlying principle is that you can lump employees together based on accepted, traditional employment classifications, and can't classify employees based on any health factors. You can also have separate eligibility requirements for different benefits offered in the 125 plan. The age 21 thing comes in because most 125 plans do not allow under-21's to participate, so in that sense, they are a classification. If your 125 plan doc does allow them, however, they cannot be excluded from the non-discrimination tests. Aside from the age-21 rule, age classifications are not usually accepted employment classifications. For instance, you may have Supervisors/Managers who are under 21, and may have rank-and-file warehouse workers over age 50. The classifications must be consistent with business practices.

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To answer the question, I was getting my info from the EBIA Cafeteria Plan manual, p. 201 which says, "Whatever the plan's actual employment requirement, it must apply the requirement equally to all employees. For example, the plan cannot provide that one group of employees is eligible to enter the plan immediately, while another group must complete 6 months of employment." On p. 828 of the same manual, EBIA gives more examples of the same.

Are they incorrect? Or am I misunderstanding what I am reading?

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I don't use the EBIA manuals, so I can't see them in order to review the wording they use. The Thompson flex manual is pretty clear that different eligibility requirements can be applied to different employee classifications and to different benefits. Obviously, it makes me second-guess myself. Highly compensated individuals cannot be favored with respect to eligibility to participate. For purposes of making sure HC individuals are not favored, a “classification shall not be treated as discriminatory if the plan benefits a group of employees” (sec 125) which is a “classification set up by the employer and found by the Secretary not to be discriminatory in favor of highly compensated employees” (sec 410), and “no employee is required to complete more than 3 years of employment with the employer or employers maintaining the plan as a condition of participation in the plan, and the employment requirement for each employee is the same” (sec 125). Each classification of employee would need to be run through this sentence. My interpretation has always been that this would mean that every classification must be effective within 3 years and 364 days of employment [applying clause (ii)], and each classification would need to have its eligibility provisions applied uniformly. I can see the confusion in the wording of the Code, however. It might be worth reminding that the 125 plan is only a pre-tax funding mechanism, and each benefit in the 125 plan may have its own eligibility provisions. For instance, medical may be effective after 30 days, but dental may only become effective after 1 year. This is a common practice to reduce adverse selection in dental benefits, which are often abused. When the employee starts pre-tax payroll deductions for medical, he/she is participating in the 125 plan, even though they can’t yet get dental. Just because someone is now participating in the 125 plan doesn’t mean they can now get whatever they want in the plan. The provisions of the underlying plan still apply. I know, however, that there are a few instances where 125 trumps the underlying plan. I know HIPAA clearly states that employment classifications with regard to eligibility are allowed as long as they are not based on health factors, but that doesn’t really help here since HIPAA doesn’t recognize any potential restrictions imposed if the plan is funded through a 125 plan. I’m still second-guessing myself. Other thoughts?

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The advise that I have gotten from them (EBIA) agreed that the underlying welfare plan could have different eligibilities, ie managers eligible for group medical upon hire, and everyone else at 90 days. If contributory, pretax deduction eligibility then had to be the same, and at 90 days, not upon hire. So, the managers would make post tax contributions for the 90 days, and then, in effect, get a raise by moving that to pretax.

They are having a 2 day advanced Cafeteria Plan seminar in July, and I faxed them this thread. I was told to bring it up in the general Q&A following the prepared outline. After all these opinions, I am anxious to hear what they have to say.

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Guest aearle

Wow! Thanks so much to all of you for putting so much effort into answering my question. I know it is something we all need to get a handle on so we do not advise people incorrectly. I am eager to hear the results from the July event. Thanks again.:)

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Guest Wildsporty

Since we are discussing Cafeteria Plans I have a qustion on the employee elgibility. Does the hours needed for elgibility go by hours scheduled or hours worked? This is in contention between two departments in our company and I have been unsuccesfull in finding an answer in the rules and regulations.

We have employees scheduled 60 hours with full benefits and only working 20 hours and then

We have employees scheduled 20 hours with no benefits and working 80 hours.

I am assured this is legal because our plan says scheduled hours, but I am not sure that is legal.

Does anyone know?

Thanks,

Shirley

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It should go by scheduled hours. If you go by hours worked, you will not know until after the time period goes by whether or not the employee is eligible to participate in the 125 plan. The problem of individuals sheduled to work 60 hours but only putting in 20 is another issue. These people should be using up all available time off, then you can consider some sort of probation, or the like. Employees sheduled to work 20 but putting in 80 need to be reviewed, as well. It is unfair to these people if this continues on a regular basis. I don't know enough about general employment law, but this seems like it would be illegal since it appears to avoid granting benefits.

Incidently, the Section 125 rules that says that employees must be allowed in the flex plan within 3 years and 364 days of employment does not look at the hours worked. For instance, assume regular full-time employees have to complete 6 months of full-time work before they can come on the 125 plan. Also assume you have an employee who has worked part-time for 5 years and is only now going full-time. Since they have already worked more than 3 years, they can come on the 125 plan immediately upon going full-time.

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  • 4 months later...

Along these lines, can an employer currently offering a Premium Only Plan to all employees, both hourly and salaried, add a new Full Flex Plan and offer it to only the salaried employees as of the new plan year?

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