Minimum Age for a Section 105 medical reimbursement plan?

[Guest]

Can an employer (a partnership) establish a minimum age of 25 for participantion in a medical reimbursement plan? A 1,000 minimum hour requirement? Thanks.

[KIP KRAUS]

The 1,000 hours makes since, but why is the employer trying to keep employees under age 25 out of the plan? Have a lot of young employees???????? If the employer is not funding the plan, it's to his advantage to have employees in the plan just from the stand point of saving on FICA expenses.

[jeanine]

Is the plan self-funded or an insured product benefit? If it is self-funded, ERISA does not let you discriminate against similarly situated individuals. You could have a plan that just compensated the partners and not hourlies, or you could have a lesser benefit for full time vs part time. To my knowledge, this kind of classification does not include classifying persons by age for medical benefits.

If this is offered through an insurance plan, check with state law. In Ohio, a small business (under 50 employees I think) may not offer insurance to some employees without offering it to all, regardless of whether it is management vs. hourly.

[Guest]

This would be a medical reimbursement plan only, with the the business deducting the reimbursements as business expenses.

[JWK]

Good point about state insurance law for insured plans. And, if the plan's insured, you don't have to consider nondiscrimination rules under section 105 of the code.

If the plan's self-funded, the section 105 nondiscrimination rules do apply.

I'm assuming there's a reason why the cut-off is age 25, and it's probably because you can exclude employees under age 25 from section 105(h) discrimination testing. (As an aside, I'm not aware of a nondiscrimination rule for health benefits under ERISA--leaving aside the health status nondiscrimination rules, which presumably aren't at issue for this group.) So, excluding the under 25 group won't hurt you for nondiscrimination testing under the code.

Same rationale on 1,000 hours. Actually, you can exclude as "part-time" anyone whose "customary weekly employment is less than 25 hours", i.e., 1300 hours per year. So, you'd be letting in some employees who are otherwise excludable and you'd have to include them in your test, but you could generally exclude anyone with less than 1,000 hours.

Also, the ADEA doesn't apply to employees under age 40, so no problem there. You should review state nondiscrimination in employment statutes--also check to see if there's an exception for "bona fide" employee benefit plans.

Finally, it seems a little unusual to exclude the group of employees that conventional wisdom says are the healthiest. So, if there's some ulterior motive (e.g., if there is some sort of health issue that could violate HIPAA), I'd want to explore that as well.

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[This message has been edited by JWK (edited 03-03-2000).]