Plan Design Issue

[Guest AnneKimb]

Does anyone have comments on the following?

I have a client that is a staffing company with salaried and temporary employees. They want to offer one type of medical coverage to the salaried employees and another to the temporary employees. The salaried people get the better plan; however, all employees will have to pay the same percentage towards the premium costs: 25% (through the 125) while the employer picks up the rest of the cost (obviously the employer will be paying more for the salaried folks but that is outside the 125 plan). Although I've told them I don't recommend it, it should be tested and could be discriminatory, they are putting up a huge argument it is not since all employees have to pay the same percentage. Do you have any private letter rulings or other code section you can refer to (other than the testing regulations) and I have to give them more concrete examples before they will set up the plan?

[jpod]

Why should anyone care a whole lot if the plan does not satisfy the Section 125 nondiscrimination rules? You can have a perfectly valid Section 125 POP even if it is discriminatory. In this day and age it is a crime (figuratevely speaking) not to have a POP if employees pay part of the cost of coverage. The only downside to the plan being discriminatory is that the highly compensated individuals and Key Employees won't get the pre-tax treatment, which is where they would have been anyway without the POP.

Having said that, you may not be correct on the issue of whether the plan is discriminatory under Section 125. I don't think it's the slightest bit clear how you apply the Section 125 nondiscrimination rules to plans that are exclusively POPs.