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Employee Waiting Periods (Discrimination?)


Guest Aaron E
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An oldie but a goodie. My client hired a new benefits administrator and she's looking to make her mark.

Her concern is there may be discrimination within their Sec. 125 premium-only plan because their Salaried employees enjoy a shorter eligibility period (30 days) than their Hourly workers (90 days). While I've dealt with this issue over and over again, I'm now on my own and until I get my "Spencers'" or "Thompson Publishing" ERISA guide books, I don't have readily-available resources. Can anyone help me out?

Thanks to anyone in advance!!

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Aaron:

I don't see how having a shorter waiting period for salaried employees in and of itself can be discriminatory regarding a premium only 125 plan. Plenty of employers have shorter waiting periods for salaried employees than they do for hourly employees. If the discrimination testing passes then it doesn't seem to me that it can be an issue.

Sorry I don't have a siting for my opinion, which it is, my opinion and I would operate any such plan in the same manner until it proved to be a problem.

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I guess I must be missing something,but why would you have a split eligibilty for a POP plan? We write our documents so that the eliligibility for the POP plan is the same as the underlying health insurance. Why make an employee contribute on an after-tax basis? The FICA savings should incent the employer to encourage participation. This is why many employers utilize negative enrolment for POP plans. There is no risk to the employer like under the health FSA; therefore, I see no reason to make any employee wait to participate in a POP plan.

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I can't speak to the pre- vs. post-tax philosophy, but in some industries there is a definite reason you'd put your hourlies under a different eligibility period than salarieds.

In heavy construction, for example (personal experience) a lot of hourly workers are on-site for only a few weeks. Making the waiting period longer (in our case it was 120 days) weeded out the transients and short-term workers, making administration much easier. If you have a business which relies heavily on seasonal or temporary help for production or labor, then it's a good idea to have a longer waiting period for those classes.

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I think the source of the concern over different eligibility standards for different groups of employees may be Code Section 125(g)(3)(B)(i) which provides that a 125 plan is not discriminatory as to eligibility as long as (among other things) the employment requirement for eligibility for each employee is the same. I think there are ways to support different eligibility standards but I think this is the Code provision that raises the issue.

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  • 2 weeks later...

Kip, isnt it dangerous for someone to wait until there is a problem before you advise them to fix it. How do you fix if you fail testing, you would still have failed and would be liable for the penalties.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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GBurns

One thing we don't know because we haven't heard from Aaron E. since this topic was started is are we talking about eligiblity for medical/dental,etc. being different than for salaried vs. hourly thus applying the same eligibility to the Section 125 plan? If so, I see no problem with the different eligibilities, and doubt that it would affect the discrimitory provision of the Section unless the employer has a ton of HCs. In any event, you can do a preliminary test to see if it may be discriminatory, same as you do for 401(k) ADP testing.

Most plans I've been envolved with apply the same eligibility for Medical/Dental as for 125 POPs. Since the savings is also reaped by the employer I don't see why they would allow a person to participate in a Medical/Dental plan earlier than they would let the same person pay premiums via a 125 POP.

By the way, isn't this government discrimination testing for welfare plans getting to be little redicules? Unless they start a full scale audit of welfare plans, I don't see getting all worked up about, just try to do what makes since people.

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Guest Aaron E

I'm back and "thank you" to everyone who has contributed to this topic.

The only difference in Waiting Periods exists between the Salaried v. Hourly (30 days v. 90 days). The eligibility to enroll in the POP is the same (i.e., Date of Hire). However, there's no benefit to this since there's a Waiting Period to satisfy and a FSA does not exist.

How does this "sit" with everyone out there?

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To recap, it sounds like everyone can jump in the pretax contributions pool on day 1 (according to the entity's 125 plan) but some WILL jump sooner than others because they're eligible for health benefits sooner.

I agree with the Joe P, who suggested that the new person seems to be asking the right questions for (maybe) the wrong reasons. I doubt you'd have an eligibility problem with the 125 plan, but you do have a strange relationship between 125 & health benefits.

[This message has been edited by Greg Judd (edited 10-14-1999).]

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