Different Benefits for different classes of employees

[SLuskin]

I have a client who has about 170 employees. They want to do a carve out for 30 managers (not owners, officers or HCE, these managers earn $30-$40,000) and offer them a group medical plan. They want to offer the other 140 employees $40-50/month to either purchase individual insurance on the market or else a "seed" into the medical reimbursement (fsa) account. Can they do this? If so, and the managers are required to pay part of the premium, can this be done on a pretax basis?

Thanks.

This is a prison ministry that can afford very little in the way of benefits. I would like to help them if possible.

[mroberts]

As long as you can classify them out (i.e. managers) normally you're going to be ok. Where I do see a problem is finding a carrier who will want to write the business. If I was the underwriter and I knew only 30 out of 170 employees were going to be covered under the health plan, I would DNQ the case.

Is there a possibility for the employer to offer all the other employees a PPO with a very high deductible and pay a good chunk of the premium? Unless you get 120 to 130 employees, I don't see any carrier willing to step up to the plate on this one.

[SLuskin]

Actually, it is the health insurance agent who called me in to assist. Apparently, he has a carrier that will do a carve out of this nature. The only question was, can we offer 2 different Section 125 Benefits to 2 classes? Class 1 (managers) pretax their portion of the health ins. premium, and make salary reductions into the medical and daycare fsa's. Class 2 (everyone else) seed their FSA with 45-50/month and have them participate only with respect to the flexible spending accounts?

I was not sure how this proposed arrangement would pass the eligibility and availability tests.

[mroberts]

That I'm not sure about since I've never set up a plan that way. Just out of curiosity, which insurance carrier agreed to do this? The next time I have an unwritable medical case, I'll be sure to give them a call.

[Guest Lugeguy]

The offering a carve out is OK and using two carriers or one carrier with two plans is OK. Full disclosure to the carriers would be critical in either case.

The issue is really the 125 rules...your plan document would have to reflect both plans and how you are contributing to them.

Careful drafting of the plan document is required, as well as looking at the testing for HCE's.

You should look into a great HRIS system to help administer this process....on line enrollment and plan doc's distributed electronically.

Also the corporation board of directors must meet and approve any of the Sec. 125 plan changes. Need notice and approval for corporate records.

[SLuskin]

Thanks!

[MPLSLAW]

I agree that this design should work so long as the carve out class stays out of the HCE classification. I have seen flex plans designed with different employer benefit allowances for 6 different classes of employees. The key is passing the key employee and HCE tests in 125 and 105.