Section 105 MERP Design Question

[Guest JimD-EBR]

Any thoughts on designing the benefit of a MERP based on the number of hours worked per year (or expected to work)? For example, for employees working 1751-2000 hours would receive 100% of the benefit; 1501-1750 hours receive 75%; and 1251-1500 hours receive 50% of the benefit defined in the plan.

Realize that 105(h) would apply re: highly compensated employees - any other issues? Cites appreciated.

[GBurns]

IMHO, this sort of design probably would be so difficult to explain to the employee's and so difficult to administer that it would not be worthwhile.

I understand you to be saying that the MERP will reimburse up to a stated amount per year. So that if, for example, the stated amount was $1200 per year, employees 1751+ hrs would be eligible for reimbursement of 100% of expenses up to the $1200 limit, whereas an employee with 1251-1500 hours would only get reimbursed up to $600.

When would the employees be eligible? After accumulating the hours? What is the period of coverage for incurring expenses? Start of Plan year or only after eligibility date?

What do you say to an employee who normally would work 1751+ hours but because of the same illness or injury that causes the medical expenses, is only able to work 1499 hours? You might be just adding insult to injury.

[Guest JimD-EBR]

GBurns - thanks for the input; had actually thought of e-mailing you directly given some of your other posts. I'll bite, what is IMHO?

Agreed, administration would be more cumbersome with tiered benefits based on hours worked or regularly scheduled to work.

Would base the benefits on the hours regularly scheduled to be worked at the beginning of the plan year not the actual hours worked. If employee is on leave due to illness/injury, they would still be in the same classification (full-time) for the purpose of the benefit.

Your example does bring up a good question - what if the employee's classification is changed mid-year i.e. from 1751+ hours to 2/3 part-time (1340 hours). Any recommendation on handling the benefit amount? If employee is reimbursed $1200 prior to the part time classification, there would be no loss of benefit for that plan year. But if no expenses were incurred prior to part-time status, would you recommend reducing benefit to $600 from reclassification date forward?

What if status went from part time to full time midyear; would you allow the increased benefit only from the date of the change?