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POP testing safe harbor


Flyboyjohn

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Employer pays 75% of NHCE employee premiums, NHCEs pay their 25% pre-tax via premium-only cafeteria plan.

All HCEs get no employer subsidy but pay 100% of premiums pre-tax via POP.

Since NHCEs are getting the better deal will this structure automatically pass the POP safe harbor testing rule?

Thanks

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The POP safe harbor talks about just passing eligibility. Then logically, everyone is eligible so you should pass. Here is all that is in the proposed regs...

(f)Safe harbor test for premium-only-plans—(1) In general. A premium-only-plan (as defined in paragraph (a)(13) of this section) is deemed to satisfy the nondiscrimination rules in section 125© and this section for a plan year if, for that plan year, the plan satisfies the safe harbor percentage test for eligibility in paragraph (b)(3) of this section.

(2) Example. The following example illustrates the rules in paragraph (f) of this section:

Example. Premium-only-plan. (i) Employer F’s cafeteria plan is a premium-only-plan (as defined in paragraph (a)(13) of this section). The written cafeteria plan offers one employer-provided accident and health plan and offers all employees the election to salary reduce same amount or same percentage of the premium for self-only or family coverage. All key employees and all highly compensated employees elect salary reduction for the accident and health plan, but only 20 percent of nonhighly compensated employees elect the accident and health plan.

(ii) The premium-only-plan satisfies the nondiscrimination rules in section 125(b) and © and this section.

But the example given assumes a uniform amount or percentage without saying that this a strict requirement of the safe harbor.

Also, then you come to the question whether there is a "uniformity" of benefits requirement in eligibility testing itself which the examples in the proposed regulations on eligibility testing seem to imply (at least to a plan that is open to everyone but discriminates against NHCEs as to some benefits). But here since you are discriminating against HCEs you would think you would be ok, but I suppose it is still unknown at this point. Look at Buck's comments to the proposed regulations at the bottom of page 4 and top of page 5 where they raise this issue.

http://www.buckconsultants.com/portals/0/publications/comment-letters/comment-IRS-Section-125-Proposed-Regs-2007-1105.pdf

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