Can company contribution rates be different for active vs. retired in

[Guest dhp]

Small self-funded plan with 172 covered lives (107 are active, 65 retired). Retirees over age 65 are on Medicare carve-out. I've searched the ERISA regs but can't get a definitive answer on contribution rates. Could we (the company) contribute a different percentage toward the active's premium vs. the retiree's premium? I know we can contribute differently for ee vs dependents.

[papogi]

Since this is a legitimate business classification of employees, I don't see that this would pose a problem.

[Kirk Maldonado]

Have you verified that there wouldn't be a problem under IRC Section 105?

[papogi]

I don't see that there would necessarily be a problem with 105. I assume you are specifically referring to 105(h)(4). I have always been under the impression that this means, for instance, that if management is provided with certain maternity benefits within the health plan, then similar benefits need to be provided to other employees. Am I missing something?

[Kirk Maldonado]

papogi:

So you think it would be permissible to charge a monthly premium of $100 for non-highly compensated employees, but a premium of $1 per month for highly compensated employees?

[GBurns]

If all retirees (regardless of previous job title) get charged $1 and all actives (regardless of job title) get charged $100, why would something be wrong?

There were no other classifications given and no mention of the possibility of any sub-classes within the 2 given classes.

[Kirk Maldonado]

What if all of the retirees had been highly compensated employees while they were working?

I'm not saying you definitely have a problem; I'm just saying that it is foolish to put your head in the sand and say that there is no possible problem. You need to examine the facts before you conclude that there is no problem. Making a pronouncement that there is no problem without investigating the facts is a great way of getting into trouble.

[papogi]

I understand your point, Kirk. There are certainly several non-discrimination areas than need to be satisfied, and my answer was not meant as a statement that, since what they are doing seems OK in my view, that all other areas of non-discrimination testing go out the window. The aim of the post was whether, as a classification purpose, separating actives from retirees was OK, and whether that classification allowed them to subsidize premiums at a different rate. That factor alone does not seem to cause any problems. Of course, they also need to separate their population by non-HCE's and HCE's as well as non-key and key for certain testing.

[mbozek]

The employer should review the regulations under the Federal ADEA. In Erie County Retirees Association v. County of Erie, Pa, (2002) the Thrid Circuit held that retiree health insurance is subject to the ADEA and offering different health benefits based upon medicare eligibility violates the ADEA unless the employer can demonstrate compliance with the equal benefits or equal cost test of the ADEA at 29 CFR 1625.10(a). Compliance with this test is very difficult since the employer would have to construct a separate actuarial table to prove compliance with the equal cost/equal benefits test.

[MGB]

The results of the Erie county case would not apply to differences between retirees and active employees. It only applies when there is an age-based distinction within the retiree group.

[mroberts]

I don't see a problem with it, just like there wouldn't be a problem with salaried employees having their coverage paid at 100% and hourly employees paid at 50%. As Kirk pointed out, you do have to take a look at the overall picture, however, from your post, it doesn't seem like you were asking about that.

[Guest dhp]

Thanks. Just to clarify, all active employees, regardless of classification or pay, contribute at the same level. Further, all retired employees, regardless of previous classification or previous pay, will contribute at the same level.