Long Term Care Insurance -- Discrimination

[chris]

I just recently looked at Code Sec. 7702B re long term care. Appears that it is to be treated as an accident and health plan. Do the same discrimination requirements apply? Employer wanted to provide e/ee's with choice between long term care insurance and cash knowing that only one of the highly compensated e/ee's would choose the long term care insurance. My thought was that would fail the discrimination req's for cafeteria plans. Employer then gave me a brochure from insurance agent which stated that an employer could provide long term care insurance under 7702B under a discriminatory basis. I am trying to find the Code justification for this. In the past, what I had found was that if an insurance company was willing to write it, then it wasn't discriminatory. Anybody able to shed some light on the discrimination rules which may or may not apply to long term care insurance? Thanks.

[chris]

From my research thus far it appears that LTC under 7702B is treated under the rules for 105 and 106 with adjustments/exceptions. Specifically, LTC insurance provided by the employer would be subject to the regular "plan for employees" issues under 105 and would only be subject to the discrimination requirements if they were self-insured. Thus, appears to be back to the if the ins. co. will write it then it's not discriminatory rule of thumb.....

[QDROphile]

Please explain the point of the "choice between long term care insurance and cash." You can't offer a meaningful choice between cash and a nontaxable benefit unless the arrangement complies with section 125 of the Internal Revenue Code. Section 125(f) disqualifies long term care insurance, although you can get there through an HSA because of the special rules applicable to HSAs.

[chris]

Employer has 4 shareholder-employees and 26 staff employees. One of the shareholder-employees would like to have long term care insurance. The other 3 would not/could care less. Consultant had planned for the 1 shareholder/e/ee to forego year end bonus to fund premium for a long term care insurance policy. Thus, on its face (and w/o researching it...) the choice appeared to be b/t a taxable benefit (cash) and a nontaxable benefit (LTC ins.). 125(f) aside, if such a choice was given and only the 1 HCE chose the LTC ins. then it would fail the discrimination req's for caf. plans. Thus, looking at the alternative of employer only paying for LTC ins. for the 1 shareholder/owner. Hence, the discrimination issue as to that arrangement. As I replied above, it appears that the 105 analysis of whether it is a "plan for employees" would apply. If so, don't think a class of one would work. May have to have employer buy LTC for all officers of employer who all are also employees....ends up that the officers are all shareholders so IRS could eventually argue that it was a plan for owners and not employees.....