HRA and Nondiscrimination Rules

[Guest Brenda N.]

Does anyone think a plan design where the employer contribution is based on family size would be allowable under the HRA rules? Can you forsee nondiscrimination testing problems? The design would be $500 contribution for singles, $1000 if two family members, $1500 if three members, etc.

Brenda

[papogi]

This appears to be OK. As long as the employee salary reduction (assuming this is under a 125 plan) for the health plan coverage does not exceed the actual cost of that health plan coverage, it appears that the salary deductions are only indirectly related to the HRA maximums. Under that description, this plan design would be fine.

[KIP KRAUS]

Many health care plans have a three tier rating system where there is a rate for a single contract, employee plus one dependent and employee with two or more dependents. The rates for each class are different; therefore if you apply an even percentage contribution rate to each rate (i.e. 20%) then you would have rates related to three family sizes. However, I wouldn’t advise trying to charge employees by the total number of their dependents beyond a three tier rating system.

[Ron Snyder]

As mentioned above, the approach would work. It may cause nondiscrimination problems in a small group (under 10 participants) but would not be likely to do so in a larger group unless there were multiple Key Employees in the arrangement with family coverage while the rank and file are single.