excluding employees who opt for "no benefits"

[Guest cbclark]

Thanks in advance. I have wandered around the boards and decided that my question is just insane but I am going to post it anyway. DB plan in a hospital. Purportedly the hospital has employees who would rather take more in hourly pay than participate in the "benefits" programs (not sure if this means health and welfare in addition to any retirement plans). Sponsor wants to amend the plan to exclude the "no benefits" employees. For the sake of argument let's assume this would apply to new hires only. I am ok with an employee irrevocably opting out for whatever reason but there is something a bit unsavory, a bit manipulative, a bit smelly about opting out for more money...I have raised the possible CODA issue, and the issue of how on earth do you define the excluded class in the plan document...I have been assured that these "no benefits" employees would never amount to more than 30% of the eligible plan population so there would be no "reasonable classification" issue, but it still bugs me. The potential "no benefits" employees could in theory be part time or full time.

What am I missing? I don't have a good sense of comfort that the employee would necessarily be bargaining in an equal posisition of power vis a vis the salary/benefits conundrum, but I know that fairness in employment relationships is not the main concern of ERISA and IRS rules. Still and all this just stinks to me and I need either a good foundation to say oh heavens no you can't do that, or a good logical train to show me why it is not a problem. What a Monday is all I can say.....

[Andy the Actuary]

They could change the Plan to a contributory Plan for new employees with the employee contribution related to the increase in pay.

[Guest cbclark]

The squirrelly part of this mess is that there is no clear number of employees who might want to opt out. One year it could be none, one year it could be 20. Thanks for the idea and I will pass it along.

[MARYMM]

Thanks in advance. I have wandered around the boards and decided that my question is just insane but I am going to post it anyway. DB plan in a hospital. Purportedly the hospital has employees who would rather take more in hourly pay than participate in the "benefits" programs (not sure if this means health and welfare in addition to any retirement plans). Sponsor wants to amend the plan to exclude the "no benefits" employees. For the sake of argument let's assume this would apply to new hires only. I am ok with an employee irrevocably opting out for whatever reason but there is something a bit unsavory, a bit manipulative, a bit smelly about opting out for more money...I have raised the possible CODA issue, and the issue of how on earth do you define the excluded class in the plan document...I have been assured that these "no benefits" employees would never amount to more than 30% of the eligible plan population so there would be no "reasonable classification" issue, but it still bugs me. The potential "no benefits" employees could in theory be part time or full time.

What am I missing? I don't have a good sense of comfort that the employee would necessarily be bargaining in an equal posisition of power vis a vis the salary/benefits conundrum, but I know that fairness in employment relationships is not the main concern of ERISA and IRS rules. Still and all this just stinks to me and I need either a good foundation to say oh heavens no you can't do that, or a good logical train to show me why it is not a problem. What a Monday is all I can say.....

Are these "per diem" employees ? IOW, employees who don't have regularly scheduled hours ? This is common in hospitals and they are usually paid a higher hourly rate. They are not eligible for H&W coverage. They also don't qualify for paid time off/vacation/sick time. We recently excluded them as a class from participating in our 401(k) Plan but allowed them to be in the 403(b) Plan which does not have any employer contributions.

[Andy the Actuary]

The squirrelly part of this mess is that there is no clear number of employees who might want to opt out. One year it could be none, one year it could be 20. Thanks for the idea and I will pass it along.

My comment was simply to suggest an odorless way of fulfilling an objective and should not be construed as a recommendation. Two comments:

(1) The election was intended to be one-time and irrevocable; and

(2) Do not pass along until you've considered the burdensome administration and communication of a contributory defined benefit plan. This is by no means a modern and popular way to go.

[Guest cbclark]

Thanks for the information. Per diem employee classification sounds really good if I can find out for real that the employees fit that category. My fear is that some how new employees "get the idea" from somewhere that they can trade benefits for more wages. I have to dig more with the employer but I am trying to find support for my resistance to the idea.

[Guest cbclark]

"My comment was simply to suggest an odorless way of fulfilling an objective and should not be construed as a recommendation. Two comments:

(1) The election was intended to be one-time and irrevocable; and

(2) Do not pass along until you've considered the burdensome administration and communication of a contributory defined benefit plan. This is by no means a modern and popular way to go."

No worries! I have hammered home the irrevocable and one-time election aspect.