nondiscrimination issues

[Guest KLM]

Two questions:

1. A client wants to give its salaried ees $1,000 cash (taxable) if they do not choose the er's health care plan, but does not want to do the same for its hourly ees. Is there a potential nondiscrimination issue?

2. A client wants to amend its 125 plan to give lower paid ees higher paid benefits than its higher paid ees. Any issues?

Thanks.

[leevena]

Rule of thumb is simple, you cannot discriminate within a recognized group of employees. So, if you have two bonafide groups of employees, you can do for one and not the other.

As for the incentives, two things immediatly come to my mind. The first is the extra money to get employees out of the health plan. Need to be careful not to fall below any participation levels. The second is the incentive may end up causing your 125 plan to fail testing. You may want to analyze how many may take advantage of this and see how it affects the testing.

Good luck.

[Chaz]

Rule of thumb is simple, you cannot discriminate within a recognized group of employees. So, if you have two bonafide groups of employees, you can do for one and not the other.

As for the incentives, two things immediatly come to my mind. The first is the extra money to get employees out of the health plan. Need to be careful not to fall below any participation levels. The second is the incentive may end up causing your 125 plan to fail testing. You may want to analyze how many may take advantage of this and see how it affects the testing.

Good luck.

I thought a cafeteria plan can discriminate as long as it doesn't FAVOR HCEs.

[leevena]

I am sorry, maybe I confused the issue with my answer. I did not think that was the question you were asking.

Your first question was "1. A client wants to give its salaried ees $1,000 cash (taxable) if they do not choose the er's health care plan, but does not want to do the same for its hourly ees. Is there a potential nondiscrimination issue?" There is no mention of a 125 plan, so I assumed the employer wanted to give some ee's the money to drop the health plan. Again, if the group has bonafide groups, such as "salaried" and "non-salaried", it is ok. My issue about falling below participation levels still is a concern, depending on the size of your group and the opt-outs.

As for the second question "2. A client wants to amend its 125 plan to give lower paid ees higher paid benefits than its higher paid ees. Any issues?", I mis-read this. I read "give higher paid ee's higher paid benefits", sorry.

This is ok, and may in fact help with your 125 testing.

Again, sorry for my confusion.

[Guest TXCafe]

I would also be careful if you have anyone who might qualify for Medicare. It's possible that paying incentives to not enroll in the group health insurance could be misconstrued as incentives for Medicare qualifying individuals to use Medicare only and not enroll in the group health. I don't know just a whole lot about it but I know there is a law that is supposed to protect against employers trying to force Medicare participants to use the Medicare only and not enroll in available group health. Just a suggestion...sorry I don't know more about it but maybe someone else here will!

[QDROphile]

How is the option to elect between health benefits and receipt of $1000 not a cafeteria plan?

[leevena]

How is the option to elect between health benefits and receipt of $1000 not a cafeteria plan?

The original question, #1, does not mention the use of a cafeteria plan. I assumed the two questions were about two different clients,one with a plan, one without a plan. Good point, don't know if my assumption is right or wrong.

[Guest KLM]

Thanks for all the replies. Yes, the $1,000 cash in lieu of health care coverage would be offered under a cafeteria plan, but only to the salaried EEs. So, if I understand the replies, it's ok to offer different benefits to distinct bona fide groups (salaried vs. hourly), but there may be issues under the nondiscrimination rules.

Thanks.