Separate welfare plans for key execs

[Guest FringeBenefits]

I have heard that companies may have one type of welfare plan (with SPD) for all employees, while creating separate welfare plans (without SPDs) for the benefit of only highly comp'd employees. Are there any legal problems with this or reasons for employes not to create this type of arrangement?

Thank you.

[Lori Friedman]

You don't mention which benefits will be provided by the plans. If you're talking about health/medical benefits, you shouldn't run into any problems if 100% of the benefits are provided through health insurance policies. Self-insurance benefits, however, are subject to nondiscrimination rules and might be included in the highly-compensated employees' gross taxable income.

[GBurns]

I thought that it was a requirement of ERISA etc that an SPD must be provided. I think that it was section 102 for ERISA and 125 for Cafeteria Plans.

Even if not required, How would you communicate the information regarding these benefits without using an SPD?

[Ron Snyder]

Welfare benefits are subject to several sets of nondiscrimination rules. Lori mentions IRC §105(h) rules for self-funded medical plans. Flex plans have their own nondiscrimination rules under IRC §125. Life insurance plans have nondiscrimination rules under IRC §79. And certain welfare benefit plans are subject (also) to the nondiscrimination rules in IRC §505. Plans subject to §419A are also subject nondiscrimination rules of IRC §505. Also note IRC §414(n)(3) (nondiscrimination in welfare benefit plans of affiliated service groups) and IRC §414(t) (nondiscrimination in welfare benefit plans of controlled groups).

All employee welfare benefit plans are covered under ERISA and require a SPD.

Some unscrupulous and/or incompetent promoters claim that their welfare benefit plans are "Top Hat" plans and are therefore exempt from ERISA. (1) Top Hat plans are deferred compensation plans, not welfare benefit plans; (2) Even Top Hat plans are subject to certain provisions of ERISA, although exempted from most requirements; (3) The citations to DoL Regs that the promoters use don't even relate to Top Hat plans; and (4) The promoters has filed their plans with the DoL as a Top Hat plan.

[Kirk Maldonado]

29 CFR §2520.104-24 Exemption for welfare plans for certain selected employees.

(a) Purpose and scope.

(1) This section, under the authority of section 104(a)(3) of the Employee Retirement Income Security Act of 1974, exempts unfunded or insured welfare plans maintained by an employer for the purpose of providing benefits for a select group of management or highly compensated employees from the reporting and disclosure provisions of Part 1 of Title I of the Act, except for the requirement to provide plan documents to the Secretary of Labor upon request under section 104(a)(1) of the Act.

(2) Under section 104(a)(3) of the Act, the Secretary is authorized to exempt by regulation any welfare benefit plan from all or part of the reporting and disclosure requirements of Title I of the Act.

(b) Exemption. Under the authority of section 104(a)(3) of the Act, each employee welfare benefit plan described in paragraph © of this section is exempted from the reporting and disclosure provisions of Part 1 of Title I of the Act, except for providing plan documents to the Secretary of Labor upon request as required by section 104(a)(6).

© Application. This exemption is available only to employee welfare benefit plans:

(1) Which are maintained by an employer primarily for the purpose of providing benefits for a select group of management or highly compensated employees, and

(2) For which benefits (i) are paid as needed solely from the general assets of the employer, (ii) are provided exclusively through insurance contracts or policies, the premiums for which are paid directly by the employer from its general assets, issued by an insurance company or similar organization which is qualified to do business in any State, or (iii) both.

[Ron Snyder]

As Kirk's post points out, certain fully insured welfare benefit plans that cover only key executives are exempt from Part I of Title I of ERISA. Lori Friedman also made this point relative to fully insured health benefits.

[Locust]

There's no need for an SPD for an executive welfare plan - the retiree medical benefits, executive physicals, financial planning, legal services, life insurance, and use of the company jet are all part of his employment contract.

[Ron Snyder]

I agree: no need for an SPD for executive physicals, financial planning, legal services, life insurance or use of the company jet are all part of his employment contract.

I disagree with respect to retiree medical benefits unless such benefits are provided through an insurance policy or contract.

[GBurns]

The Op did not state that there was an employment contract. So what happens if there is no employment contract?

The OP also has not clarified what the benefits are. So what happens with those benefits that were not listed by Locust and vebaguru?