Discrimination Rules and Salary Reduction Under 125

[Guest Johnny]

I've tried this question on the cafeteria plan board and didn't get any responses so I thought I'd try here.

Any thoughts on how the nondiscrimination rules for 125 plans apply to government employees where the lines between entites are often gray?

For example, could a plan be put in a one state agency but not another if they are on the same payroll and use the same EIN?

Thanks,

Johnny

[mbozek]

The nondiscrimintion rules prevent discrimination in eligibility and benfits in favor of highly compensated employees who are usually owners or officers of the business. I dont know how the the term officer applies to a state agency and state entities do not have owners. Also state employees are usually low paid and it is difficult to catagorize who are the highly compensated ee in the group---In pension plans, HCEs are limited to employees who earned over 90 k in 2001. If all of the ee in the group are below 90 k in comp there should not be a problem as long as no more than 25% of the benefits are provided to "officers". If none of the ee are officers then there will be no problem with the 25% test.