Differing Plan Design for Two Companies

[Guest budman]

A plan covers all eligible employees of two companies which are commonly owned. Previously, the companies had the same benefit design and shared the same stop-loss contract. Now Company A wants to have a different benefit design from Company B--higher individual medical deductible, add long term disability, supplemental life. This would only affect the employees of Company A. The stop loss carrier states that this would be fine since they are not changing the stop-loss deductible. We do not want to have two plans due to preferable stop loss rates by combining the two companies instead of underwriting them separately plus the risk is spread over more employees. It does not seem to fall under discrimination regulations since the benefit design is not in favor of key or highly compensated employees, the plan design and available benefits would just differ from Company B. Has anyone had experience with this scenario?

[QDROphile]

You cannot say for certain that the the design differences will not cause discrimination. The demographics and benefits of one group may be disproportionate to the other and cause failure of certain tests that are applicable to the component plans. Chances are that you will be within the tolerances of the tests if both groups are large.

[Guest budman]

Company A has 75 employees and Company B has 325 employees.

[QDROphile]

If Company A has the better benefits and most of the highly compensated employees, highly compensated individuals and key employees, you could have discrimination problems.

[Guest budman]

I can understand possible discrimination issues if the scenario were different locations but wouldn't having completely separate companies make a difference?? Both companies are separate entities so can discrimination testing be performed separately? If this would pose discrimination is there something we can cite to back this up with the employers? Thanks for any help.

[QDROphile]

Start with section 414(t) of the Internal Revenue Code.