Employment Contracts

[Guest ehs]

We have a client who contributes 50% of the cost of health insurance, single or family, the employee pays the difference (50%) pre-tax. The president of the company negotiated a contract (this is a non-union employer) with two of its employees to ay 70% (ee pays 30%). The agreement occurred mid-year, off cycle with the Section 125 plan. We disagree with the employer in allowing two participants to maintain different contribution levels for the exact same coverages that the rank and file split 50/50. Wouldn't this fail the 80% test, or any other C&B test? These are HCE's too.

[leevena]

Hard to say if this action would cause problems because you did not provide the information needed to calculate. My suggestion would be to look at last years calculations and results. Then do a quick calculation based on the new employer contributions.

[jmor99]

Actually, I think the C&B test is a 75% test? Regardless:

1) 70% is within 71% of 50%. I.E., 50 divided by 70 equals 71%

2) It won't make any difference that it occurred off-cycle (off anniversary) with the 125 plan IF the excess

is payroll deducted post tax. In other words, the 50% ee portion continues on pre-tax with no changes and the difference (70% less 50%) is deducted post tax. The full amount would be pre-taxed at the next anniversary date or qualifying event.

No employer action can supersede or pre-empt federal law.

[Guest ehs]

JMOR I am somewhat perplexed by your response. The 75% safe harbor C&B test says that the employer must contribute 75% of the cost of health coverage, if two arbitrary HCE's receive a contribution equal to 70% rather than the rank and file 50/50, how is 71% passing? And, why would they be permitted to pay pre-tax at the next anniversary date?