Non-discrimination testing for POP plan

[Bird]

I barely know enough about this to be dangerous, but I'm trying to help out a CPA. If a kind soul can help out a newbie I'd appreciate it...

Medical group pays 100% of medical premiums for owners. My understanding is that this is OK, since there is essentially no non-discrimination testing of health plans themselves - if that's wrong please advise.

The practice pays some portion of premiums for everyone else. They have a POP plan to let the employees pay their portion on a before-tax basis. A quick look at the non-discrimination requirements under 125(b)(1) appears to indicate that as long as everyone is getting the same portion paid by the employer, this shouldn't be a problem.

And the requirements of 125(b)(2) can't become a problem because there are no Key employees in the POP plan, since their premiums are paid by the company.

Thanks for any feedback.

[leevena]

You are essentially right. There can be different level of premium contributions if there are different class's of employees. You can treat seperate classifications differently, but you cannot treat employees in one classification differently. As for the Section 125 test, you look to be ok. The test compares dollars used by the HCE vs the non-HCE, and since the HCE's have no premium payments the test would show that the non-HCE's are receiving 100% of the benefit.

As for who can do the test for you, there are a variety of outlets. I would check with your broker/consultant who sold this to you. Sources include the 125 administrator or an attorney.

[Bird]

Thanks. Just to be clear-

they do have other HCEs (non-owners), but the benefits are identical so there can't be discrimination. But the utilization test (25%), if I can call it that, is Keys vs. non-Keys, and there are no Keys in the POP so it shouldn't be a problem. Right?

[leevena]

Yes, your correct about the hce vs non-hce. Can't say for sure if you have a problem with the first part, that being the issue of different class of employees. Good luck.

[GBurns]

Isn't the corporate structure of the medical practice important?

Many medical practices are P.As within a larger P.A or S Corp. In either case a pass-through entity situation exists for tax purposes. The Drs are regarded as being either self- employed of more than 2% shareholders in an S Corp.

If this is the case How can they participate in an employee health plan? And are the premiums being treated as income to them?

[leevena]

George is right. Based on the way the question was worded and that a cpa was being used, I was not even thinking that the group could be structed that way, I assumed that the business was not a pass through. Thanks

[Bird]

It's not a pass-through entity and not an S corp.

[GBurns]

What is it ?

What are the medical group and the Dr's practice structured as?

[Guest b2kates]

Check to see that the owners are not included as eligible in the POP plan; then there should be no problem.

[GBurns]

The POP Plan is only 1 of the issues that have come up.

Another issue is whether or not the premiums that are being paid for the owners are being properly treated. It is still not clear what the entity structures are. A response that "It's not a pass-through entity and not an S corp" but which does not state what it is, suggests to me, that what it is might not really be known. If it is not known what it is maybe it is not known for sure what is is not.

There is also the issue of classes. While it might be allowable to have no section 125 plan for the owners while having a section 125 plan for the POP for the NHCEs, it is quite possible that they are all under a single health plan. Can a single health plan have such classification or should it be 2 separate health plans? What does the Cafeteria Plan Plan Document allow? What does the Health Plan Plan Document allow?

Additionally, if this is under a group policy Is the insurer aware of this premium structure and is it acceptable?

Additionally, If this is a small group (under 50 employees) this arrangement could very well be not allowed under state Small Group Health Insurance laws.

[Bird]

Sorry, I didn't realize this was still alive...

when the speculative issue of it being a pass-through entity was raised, and the question that followed was "...if this is the case..." I didn't think it necessary to do more than say it's not. Still don't.

Thanks for pointing out potential problems. They're not actual problems.