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105(h) testing for HRA


Belgarath
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It isn't entirely clear to me as to  who can be excluded when performing the eligibility test. 1.105-11(c)(2)(iii) lists certain categories of employees who may be excluded. But, if some of these people are already eligible to participate, it doesn't make any sense whatsoever to exclude them. For example, you can exclude employees with less than 3 years of service. However, suppose the plan already allows everyone with 1 year of service to participate. I'd include anyone already eligible to participate, in the testing.

Anyone else have a different opinion?

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As a follow-up to this question, an entirely different question! Let's say an employer is hiring employees whose salaries are funded by, say, a government grant. The government grant that pays for them to hire these people specifies the benefits that they must receive, and an HRA is not one of those benefits.

First, I'm assuming there is nothing that would preclude the employer covering them under the HRA if they WANT to?

Second, if the HRA plan says that everyone who is eligible for employer's medical plan is eligible to participate, then the fact that their salaries are funded through a government grant is immaterial - these employees, who are covered under the medical plan because the government grant specifies that they must be covered,  must be considered for testing purposes, right? If the employer wants to EXCLUDE these people, then they must be considered in testing, unless they are otherwise excludable under a different, allowable category?

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In response to your first post, I think your approach to count otherwise excludable individuals in the testing if they are eligible is correct.

In response to your second post, I also think your approach is correct, although there are a number of other laws that you must take into consideration, of course, including the Service Contract Act and FAR requirements.

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Thanks Chaz. I can see I'll have to do some research, as to be honest, I've never even heard of (or at least, have no memory of) the Service Contract Act and FAR.

This may be moot, as it is apparently a very small plan that has never been tested, and it may fail miserably regardless of an employee or two funded through a government grant...

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The Service Contract Act requires entities who have government contracts (I'm not sure whether the "government grant" you mention is a government contract subject to the SCA so it may not apply) to adhere to minimum standards for, among other things, employee benefits.  There are specific hoops to go through to the extent that an employer wishes to offer an unfunded self-insured plan, which, of course, includes an HRA.

FAR generally looks at, among other things, whether amounts allocable to benefit plans are reasonable (so the government doesn't get ripped off).  Again, these requirements may not apply to your situation.

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Thanks Chaz. FWIW, although the employer didn't mention the Service Contract Act (and I certainly didn't ask, since I'd never heard of it!) the employer did mention that for this employee(s) the grant specifies certain mandated benefits, but the HRA is not among them. Anyway, your comments have been very helpful!!

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Also, again an assumption - if an employee voluntarily opts out of participation in the HRA (why would they typically do that, when it is all employer money?) they would still be included in the testing, right? I see nothing in the regulation that indicates otherwise...but if included, are they included as benefiting or not benefiting?

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  • 1 month later...

Be sure that you really are getting correct and complete info from this client, especially  about this "grant". I have never heard of such  a 'grant" and think that it might be  a misunderstanding by your client of  a contract which falls under Davis-Bacon  (DBRA) or SCA. These are Prevailing Wage jobs which  dictate hourly wages and  eligible benefits. The employee has no choice. It is entirely up to the employer and must cover all employees.

I have heard that there are some States, Counties, Cities and a few other public entities who dictate similar "Prevailing Wage" and "Living Wage" contracts which have the same or similar requirements. 

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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