Welfare Benefit Plans

[jala]

I understand that welfare benefit plans under cafeteria plan arrangements are subject to certain nondiscrimination rules: eligibility, concentration and benefits tests,etc.

Do the same rules apply to a welfare benefit plan NOT under a cafeteria plan?

Questions are: In welfare benefit plans........

May health insurance be offered only to certain individuals?

Can the employer pay different amounts to different employees within the company(ies)?

Does the employer have to offer insurance to all employees if they are a part of a control group and/or affiliated service group?

I can't find rules on just welfare benefit plans as opposed to welfare benefit plans under cafeteria plan arrangements.

I would appreciate any guidance on this issue. Thanks!!

[leevena]

It is probably best to seperate the issues.

Cafeteria plans (125 plans) are plans that allow for tax advantages. There are certain regulations that need to be followed for a 125 plan to be in compliance. So, to answer one of your questions, "Do the same rules apply to a welfare benefit plan NOT under a cafeteria plan?", the answer is no.

Your second question, "May health insurance be offered only to certain individuals?", the answer is yes. A company could have employee classifications (Union/non-union as an example) and offer to one, but not the other. The key is you cannot discriminate within a classification.

Your third question, "Can the employer pay different amounts to different employees within the company(ies)?", yes.

Your fourth question, "Does the employer have to offer insurance to all employees if they are a part of a control group and/or affiliated service group?", the answer is no.

With all that, keep in mind that the carrier may have specific rules that must be followed. Sometimes these will cause problems with the above mentioned rules. For example, what if you have a 15 life group, with two classifications of employees (9 in one, 6 in the other). The dental carrier you are looking at wants 10 enrolled as a minimum. If you only offer to one classification you will not get the min. needed.

[jala]

I really appreciate your help with this.

To make sure that I am understanding this correctly:

A company consisting of 5 employees (2 owners and 3 non-highly compensated employees) would not have a problem if the company pays for the insurance for the owners only and NOT pay for the insurance for NHCE.

Two classifications exist: Owners (HCE) and Non-Owners (NHCE) and this would not be considered discriminatory??

[leevena]

Sorry, but I am not saying that the company can pay for the owners and not the non-owners. It's a little more complicated than that. Acceptable classes include PT/FT, union/non-union, exempt/non-exempt, seasonal, different companies, but not owner/non-owner. Beyond that you can then add minimum amount of hours worked, such as 30 hours per week. From what you have written/asked, it sounds like you need to have professional help, either an attorney or benefits counselor to review all the particulars of the group(s) and what your objectives are for each. It should not be difficult to come up with a solution.

[vebaguru]

Nondiscrimination rules for health plans are included in section 105 of the IRC. Welfare plans have nondiscrimination rules under IRC section 505.

[Guest mjb]

Sorry, but I am not saying that the company can pay for the owners and not the non-owners. It's a little more complicated than that. Acceptable classes include PT/FT, union/non-union, exempt/non-exempt, seasonal, different companies, but not owner/non-owner. Beyond that you can then add minimum amount of hours worked, such as 30 hours per week. From what you have written/asked, it sounds like you need to have professional help, either an attorney or benefits counselor to review all the particulars of the group(s) and what your objectives are for each. It should not be difficult to come up with a solution.

L: where did you get that health insurance cannot discriminate within a classification?

1. Under IRC 105(h) self insured plans that do not provide for risk shifting are subject to non discrimination rules. Fully insured plans (eg. where the risk of paying benefits is shifted to an insurer) are not subject to any nondiscrimination rules. Therefore the employer can pay 100% of the health insurance premiums for the owners and require that non owner pay part or all of the premium. ERISA does not regulate eligibility for health or other welfare benefits.

2. A cafeteria plan under IRC 125 only requires non discrimination for employee who are eligible to particpate in the plan, e.g.,among those employees who are eligible to pay premiums. If the employer pays 100% of the owners premiums under an insured plan they can be excluded from the 125 plan and there will be no discrimination because only nhces who are eligible to participate will be required to contribute to the 125 plan on a non discriminatory basis.

3. The provider of health insurance may have its own rules for covering or excluding employees under the underwriting rules to prevent anti selection which are separate from the rules in 1 and 2.

[J Simmons]

Don't get too cheeky in having the corporation pay health insurance premiums for owners but not non-owners. For example, suppose three shareholder/employees, A owns 40%, B owns 40% and C owns 20%. Corporation pays up to $8,000 a year in premiums for each of A and B, but only up to $4,000 a year in premiums for C. Corporation pays no premiums for non-owner/employees.

The alignment with stock holdings will make the payment of premiums vulnerable to attack as a disguised dividend. That will result in no deduction for the corporation, but taxable dividend income to A, B and C.

[401 Chaos]

MJB,

Regarding Item 2 below, am I assuming correctly that this would only work if the cafeteria plan expressly excluded highly comped from participating in the cafeteria plan at all. What if employer paid 100% of executives' group health premiums but required rank and file to pay 50% of premiums but the employer permitted executives to participate in the cafeteria plan for pre-tax payment of certain other premiums (e.g., dental, vision, life) without any differential. Would fact that the highly compedves had 100% of group health premiums paid by employer and thus had no need to use the cafeteria plan for group health benefits be sufficient? Could the cafeteria plan just exclude / carve out the highly comped from the group health plan. To be able to get around the cafeteria plan rules by providing highly comped employees such a large employer subsidy seems almost too good to be true. Thanks.

Sorry, but I am not saying that the company can pay for the owners and not the non-owners. It's a little more complicated than that. Acceptable classes include PT/FT, union/non-union, exempt/non-exempt, seasonal, different companies, but not owner/non-owner. Beyond that you can then add minimum amount of hours worked, such as 30 hours per week. From what you have written/asked, it sounds like you need to have professional help, either an attorney or benefits counselor to review all the particulars of the group(s) and what your objectives are for each. It should not be difficult to come up with a solution.

L: where did you get that health insurance cannot discriminate within a classification?

1. Under IRC 105(h) self insured plans that do not provide for risk shifting are subject to non discrimination rules. Fully insured plans (eg. where the risk of paying benefits is shifted to an insurer) are not subject to any nondiscrimination rules. Therefore the employer can pay 100% of the health insurance premiums for the owners and require that non owner pay part or all of the premium. ERISA does not regulate eligibility for health or other welfare benefits.

2. A cafeteria plan under IRC 125 only requires non discrimination for employee who are eligible to particpate in the plan, e.g.,among those employees who are eligible to pay premiums. If the employer pays 100% of the owners premiums under an insured plan they can be excluded from the 125 plan and there will be no discrimination because only nhces who are eligible to participate will be required to contribute to the 125 plan on a non discriminatory basis.

3. The provider of health insurance may have its own rules for covering or excluding employees under the underwriting rules to prevent anti selection which are separate from the rules in 1 and 2.

[GBurns]

jala

What is/are the corporate structures involved? S Corp, C Corp etc ?