Nonbenefits employees

[austin3515]

Can anyone shed some light or provide a link with more info on excluding non-benefits employees? Can the exclusion be that simple, provided the employer actually has that "type" of employee and uses it for all of their benefits.

I just wanted to make sure there wasn't something more complicated about that exclusion then say "hourly employees."

I know about coverage

[austin3515]

Also, isn't it likely that this classification is based on the numnber of hours that someone works? So for example, your excluded if your non-benefits, and your non-benefits if you work less than 30 hours a week - problem, correct?

[QDROphile]

You are correct that an eligibility definition based on measure of service or a proxy for measure of service could be a problem under section 410(a) even if the excluded group does not cause failure under section 410(b).

[masteff]

This might be of some interest: http://www.irs.gov/pub/irs-tege/qab_021406.pdf

[austin3515]

But people are using this exclusion - so how are people defininng non-benefits eligible employees? Isn't an obvious objective to limit full benefits to full-time employees (i.e., ee's w/ more than 30 horus a week)?

[Jim Chad]

In keeping with the ideas in the examples, I would think an examiner would tell them to amend the document to define "nonbenefiting employees".

FWIW

[austin3515]

It doesn't seem like that is being requested. I have seen a few of these myself, and they just say "non-benefits employees."

[K2retire]

I must confess that I've not heard anyone use the term non-benefits employee. What you are describing sounds like what many employers refer to as a "1099 employee", although we know that is an oxymoron.

[Bill Presson]

It doesn't seem like that is being requested. I have seen a few of these myself, and they just say "non-benefits employees."

When I get employers talking about employees using terms like this, they generally mean employees working less than 30 hours per week because that's how they get excluded from insurance coverage.

I always have to explain that qualified plans don't work that way, and I'm betting you get to do that as well.

[austin3515]

I've spoken to two ERISA attorneys and y'all and we all agree that this cannot be done.

Now, if you define non-benefits employees by same means other than hours worked (such as position) it would be ok...

I also got a very good suggestion, which is non-benefits employees are exlcuded, except that statutory eligiblity applies as a fall back (in my case, eligibililty is just 6 months).

[austin3515]

HEre's an interesting twist - come to find out that for some employees, they have the option of being classified as non-benefits employees. They will get an increased paycheck if they make that election. It's not based on hours at all.

My concern now is that this could be considered a CODA, which would be very very strange inside a 403b plan...

Any thoughts?

[QDROphile]

You might consider how this fits with the rules on one-time irrevocable elections.

[austin3515]

The election as it turns out is revocable - so someone can change their mind and become a benefits employee. We're talking CODA, correct?

[QDROphile]

If it is all about the employee's election, then we are talking CODA. This can also be a problem under section 125 and I see a lot more of it under section 125. The employee forgoes health coverage and gets higher pay compared to an identical employee who gets employer provided health coverage.