Nondiscrimination Question

[Guest cphs]

Scenario 1: Doctor group pays full medical premium (insured plan) for all doctors, but only pays a percentage for non-doctor employees. Non-doctor employees are permitted to pay their part of premium through 125 plan. Nondiscrimination problem? What if 125 plan says that all doctors are excluded from participation?

Scenario 2: What if the doctor group was an S corp, so the 2% shareholders are excluded from participation by law? Wouldn't that help the nondiscrimination situation, as those shareholders (who are also HCEs) would be taxed on their premiums and, in theory, shouldn't be counted as part of the testing?

I've reviewed old posts on this issue and haven't found a consensus view. Thanks

[mbozek]

IRC 125 provides that a cafe plan cannot discriminate in favor of HCEs in contributions or benefits. Under prop. 125 regs Q-19 this is determined on a facts and circumstances basis which means there are no fixed rules. Requiring nhces to pay for pay plan benefits but not the HCEs would be discriminatory. Why not pay the Docs the amount that is in excess of the other ee contributions as comp and then provide that Docs must pay 100% of their premium? This will make the plan non discriminatory and cost neutral to docs and employer.

[KJohnson]

125 provides that a plan cannot discriminate against highly compensated participants. If all HCEs are excluded from participation then you don't have a discrimination problem under 125.

If you are fully insured you don't have a 105 discrimination problem.

I asked Harry Beker this question at a conference and he said that this plan design should not present a discrimination problem. Also, the EIBA green manuals indicate that such a design should be o.k.