Self Insured Medical & Nondiscrimination re: Eligibility

[Chalk R. Palin]

I was told that the statutory test is generally not enforced. The same source indicated that, in practice, these plans have been held to be nondiscriminatory if the same benefit is available to all eligible employees.

For example, say $5,000 is available to all employees. All employees are eligible, but only 10% of employees utilize the self-insured medical benefit at all. Since less than 70% of all employees benefit, it appears the plan would be found to discriminate. However, according to my source, if the IRS audited this plan, they would accept it as nondiscriminatory.

What do you think? By the way, of the 10% of employees that do utilize the plan, an overwhelming majority are non-HCEs.

[Ron Snyder]

The real issue on which the IRS will focus is whether the highly-paid received a greater percentage of compensation in the value of their benefits provided (not made available) than the non-HCEs. Not enough facts to make that determination.

[Chalk R. Palin]

The real issue on which the IRS will focus is whether the highly-paid received a greater percentage of compensation in the value of their benefits provided (not made available) than the non-HCEs. Not enough facts to make that determination.

The value of benefits as a percentage of compensation is 3% for Non-HCEs vs. 1% for HCEs.