POP Discrimination?

[KJohnson]

Can an employer pay 100% of the premiums for a fully insured health plan for highly compensated employees and only 50% for NHCEs but allow the NHCE's to pay their premiums on a pre-tax basis by setting up a 125 Plan that specfically excludes all HCEs from participation? Any regs or cites on this?

[pjkoehler]

Seems like a perfectly acceptable approach. Nothing in the Code or ERISA prescribes a nondiscrimination standard for the rate of the employer subsidy for a full-insured accident and health plan. The employer can provide 100% employer-paid fully insured benefits to a select group of highly compensated employees and no benefits to other employees if it wants to, even with a zero rate of employer subsidy. So, a plan that merely reduces the rate of employer subsidy for the other employees is far less problematic. Whether such an arrangement is consistent with state insurance law, which may impose certain underwriting constraints, i.e. whether you'd actually find an insurance carrier that would issue such a policy, requires a separate analysis. We also know that a cafeteria plan that excludes all Key Employees is not going to violate the Code Sec. 125 nondiscrimination test.

[Guest jlcowden]

Your idea seems destined for trouble.

I believe the two plans shoukd be aggregated for resting purposes..they may still pass .

Jere Cowden

[KIP KRAUS]

Are all exempt employees HCEs? If so, I'd agree with PJK. If not, you may need to include HCEs in your testing as jlcowden suggests. If all exempt employees are not HCEs it seems odd to me that you would use a classification of HCEs as a group who do not have to contribute to the medical plan.

This all being said, If HCEs have no contribution, then they must, by definition, be excluded from the POP so why include them in testing?

[Joe Priselac]

I agree with PJK's analysis. Remember that the nondiscrimination tests exist to protect the "little" people. The rich and powerful who control these companies don't need protection. You can always discriminate against the HCEs. If there are no HCEs in a plan, there is nothing to test regarding discrimination. In fact it is a useful design technique.

[Guest Beth N]

PJK - I don't understand your comment about insurer's reluctance or inability to write a policy covering HCEs and nonHCEs. The 125 plan is just the payment method, right?