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105(h) Nondiscrimination Issues Regarding Retiree Medical

Guest rocnrols2

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Guest rocnrols2

Company X maintains a self-insured post-retirement medical plan for eligible former employees. In order to be eligible, the employee had to habe been eligible for an early or normal retirement benefit under X's defined benefit plan, disabled for at least 2 years or terminated under a severance arrangement after having met certain age and service requirements. Those former employees satisfying these criteria must also have at least 10 years of service with the employer.

To control the extent of its subsidy, Company X amended its plan to provide that

(1) those who had attained age 40 on or before a specified date would have the Company subsidy calculated under a formula, with those having a certain number of years of service becoming entitled to a subsidy of about 80% of the premium cost.

(2) Those who not attained age 40 as of a specified date and whose age and service did not equal at least 50 as of that date, had their Company subsidy calculated as follows: the Company created a hypothetical account to which it contributed $1,000 for each year of service with the Company, Each year, the Company would contribute the $1,000 as increased by a specified percentage. Upon becoming eligible for port-retirement medical, X would apply the hypothetical account at the time of the employee's eligibility to pay its portion of the premiums for post-retirement medical. The retiree was responsible for the difference. Once the account was exhausted, the former employee paid the entire premium.

(3) Employees hired or rehired after the specified date had no company X subsidy being responsible for the entire premium, although they would be eligible for the group rates.

Is there any issue on the general rules for eligibility for post-retirement medical under 105(h)? Does the Company X method for determining the extent, if any, of X's subsidy for post-retirement medical violate the eligibility nondiscrimination rules of 105(h), the benefits nondiscrimination rules of 105(h) , both or neither?

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