Employer Contribution

[Guest MFD]

We are once again at our Renewal Date for Health Insurance.

We currently have two tiers of Employer Contribution, 80/20 for Managers, and 65/35 for staff level employees.

The question at hand is.... Can we "Grandfather" in employees that are currently on the 65/35 health plan, and change our contribution for the same staff level employee as new participants enroll in our program to something different like 50/50?

[Bob R]

More than likely you'd be able to do what is being proposed - but the depends on a few items.

First, if you're only referring to insurance then there's no problem at all. Since the repeal of Section 89 many moons ago, there are no federal nondiscrimination rules when it comes to insured benefits. There might be some state law issues here, but I doubt that is the case in this situation because presumably everyone has the same benefit - it's just the employer subsidy that is varying.

Second, if the employee paid portion is being pre-taxed through a cafe plan, then you have 125 nondiscrimination to worry about. Other than the 25% concentration test, there's really no concrete tests to determine whether one group making a larger contribution than another group is discriminatory. I think you'll find that using the 410(b) coverage type tests will help (the ratio % or the nondiscriminatory classification test component of the average benefits test). There are enough references in 125 to 410(b) or the nondiscrim classification test that I'm comfortable using those rules when testing whether different benefits or rights under the cafe plan are nondiscriminatory. One note -- if it's only NHCEs who have the lower employer paid insurance and thus the higher cafe contributions, then I don't think there's any concern (other than passing the 25% concentration test).