Two separate insurance policies...Discrimination if no Key/HCEs?

[Guest Carolyn Barnard]

I have a client who would like to set up a cafeteria plan that offers one insurance plan with better benefits and partial ER contributions to one group of employees and another insurance plan with no ER contributions to another group. There will be no Key/HCEs participating. I don't see that this is a discrimination problem under IRC 125...are there other issues? Both policies will be fully-insured.

[GBurns]

While it is quite normal to have different coverage for different classes, care ha sto be taken to ensure that the classes are acceptable. Also even is the classes are acceptable you should check to ensure that each class will pass non-discrimination tests.

[Guest b2kates]

Apart from any discrimination issue, which I believe will be satisfied with no HCEs eligible,

you need to verify that the insurance companies will issue, generally there is a minimum participation that the insurers require.

[GBurns]

I see many plans that would fail discrimination issues because somehow it was thought that the only issue are the ones related to Key and HCEs.

4 categories of HC Participants and Individuals are defined at 125(e) but many people overlook 125(e)(1)(A) "an officer". In some companies an officer might not be a highly paid individual. Sometimes a person is made an officer so that there will always be an authorized signatory when the "owners" or CEO etc are away.

125(g)2 and (3) are discrimination related and have nothing to do with either Key or HCEs. In the plan design posted there could very well be a failure because of the relationship of the full payment of premium to compensation even when not taking the employees in the other plan into consideration.

[mbozek]

Why not think outside the box and increase the salary of the persons who you want to receive the partial er subsidy? In other words if the cost is $200 per week and the employer wants to subsidize coverage for some employees at 100 a week just increase their salary by 100 and have all employees pay 100% of the premiums so there is no discrimination under 125 and all employees can be covered under the same plan.

[Guest Carolyn Barnard]

GBurns,

You stated that the classes have to be nondiscriminatory. This is a staffing company, and one group is the people who run the agency, and the other group are the temporary staffing personnel. As long as their eligibility provisions are the same, is this acceptable? (For example, three months continuous employment).

[GBurns]

I am assuming that by temporary staffing you mean Kelly or Accountemps type temporary staffing and not a PEO type arrangement.

These classifications seem acceptable, if you mean that the "run the agency" are your "in the office" people while the temporary staffing are the "outside at the client's place" people who never work inside the agency office.

[Guest Carolyn Barnard]

GBurns,

No, it is not a PEO, and yes, your breakdown of the work areas of the classifications is correct. Thank you for your help.