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Section 125 Plan

Guest ty2433

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Guest ty2433

Large employer has a health plan. 80% of the employees are in an a self- insured plan while the other 20% are in a insured plan.

The self-insured plan: The insured plan: Consists mostly of salespeople

80% employer contribution 20% employer contribution

20% employee contribution 80% employee contribution, however if the salesperson sells more he can get a higher employer


Can this employer have their employees pay for their contributions pre-tax through a Section 125 Plan?



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If highly compensated employees disproportionately participate in the self-insured plan, you are likely to fail the cafeteria plan nondiscrimination tests (but you are probably already failing the self-insured plan tests).

There might be some plan designs that you can use but you should consult with counsel about that.

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As I read the reply by Chaz, I had a knee-jerk reaction to agree with his two comments. But as I thought about it more it may not be that big of a problem. There is not enough information for us to give you a definitive answer, but you might pass the 125 discrimination testing. If all of the employees were to be offered the 125 plan, the salespeople have the greatest incentive to join it becasue they pay the most for their premiums. The current employer contribution is 80% for the self-funded and 20% for the fully-insured. There is a high probability that most of the HCE's and Key are in the self-funded. And becasue the fully-insured participants contribute 80% of the cost, there is $4 of fully-insured premium going into the plan for every $1 for the self-funded.f

What I do agree with and strongly suggest, is that you get some competent person to review the details and make a recommendation for you.

Good luck.

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