Self Insurance Nondiscrimination Question

[Guest Carly]

We have various subsets of employees. We have one particular subset that we would like to provide lesser health benefits to. If we completely exclude this group of employees, we will pass the coverage tests. It just doesn't seem right that we can exclude them altogether without running afoul of the nondiscrimination requirements, but that we cannot simply provide them with lesser benefits. Could we incorporate a subplan in our plan specifically for these select few employees? Any structuring ideas and/or suggestions (or if the answer is simply... Can't do) will be greatly appreciated.

Thanks in advance for any insight.

[g8r]

Unfortunately, there just any helpful guidance on how to apply the nondiscrimination test under IRC 105(h). The regulations leave a lot to be desired. Personally, I think you hit the nail on the head -- you stated that the plan would pass the coverage test. Those of us who are familiar with the retirement plan rules think that's all you need to worry about. If you can pass coverage by excluding the group, then you're fine.

Another way to look at it. Suppose you provide the excluded group some benefits, but not the full benefits being provided to everyone else. How would show that the plan is nondiscriminatory? I'd argue that you use the same coverage test. Break it up into 2 "hypothetical" plans and see if you could pass coverage. If so, then I think you pass nondiscrimination as to benefits. That would be the case if you provide them with a smaller benefit, or no benefit at all.