Health & Welfare Plan Testing

[MD-Benefits Guy]

I am trying to get a better understanding of the testing requirements related to Health & Welfare plans and have heard different things from different sources:

1. Exactly what tests must be run?

2. I've heard that in some instances that you dont need to identify the highly comped? Doesnt sound right?

3. In determining the highly comped, what income is suppposed to be used?

4. When is testing done....I have someone telling me that it is typical to do testing near the beginning and then again at year end?

5. What are some good vendors for testing and how much do they charge

6. Do people test company paid life insurance/add polcies.....is it required if all employees get the same coverage (1.5 times base)?

Thanks.

Also, if someone can point me to some good articles to help educate me, it would be appreciated

[Guest matthew222]

I hate to be elusive on all your questions, but it depends on what types of plans you are offering and if employees are contributing to them. Assuming employees are making contributions to the health plan (medical, dental, vision insurances), Section 125 testing needs to be done annually. Typically, the administrator of the plan charges a few hundred bucks a year and discrimination testing is included in that. Of course, check the plan document and any implementation paperwork to ensure it's not being overlooked.

If plan designs and contributions are standard among classes, generally the plan is not going to be discriminatory for life and disability insurances. As for retirement plans, I'll let someone else chime in on those since that's not my area of focus. The discrimination testing is typically done by the administrator(s), however.

[vebaguru]

1. IRC §505 contains tests which apply to all plans, as do §§419 and 419A. Other tests are created by the authorizing Code section including §§79, 105, 125. Others are created by Regs (ie, split dollar).

2. Not all tests are discrimination tests, and some of those that are specify Key Employees rather than Highly Compensated Employees or Highly Compensated Individuals (which you seemed to lump together).

3. See IRC §414(q)(1)(B). Latest update is found here IRS Limits.

4. Preliminary testing is done prior to the end of the year (to facilitate any changes needed) and after the end of the year when payroll information is finalized and before refunds of excess deferrals have to be made timely.

5. No way to endorse someone on a public bulleting board, but there are responsible and capable providers all over the country. Do some inquiring locally in the nearest big city (1 M population or more).

6. Of course. If all employees actually receive same coverage (ie, cannot elect less to avoid taxable income) it would automatically pass the uniformity part of the test. However, a participation test may still be needed unless all employees are automatically enrolled at exactly the same time.