Legal Employer Subsidy of Premium?

[waid10]

Hi. My employer subsidizes the premium payments for employee coverage. They pay the greater of 50% or $300. Is this permissible? I would think that for younger employees, the greater would usually be $300. For older employees, the greater would likely be 50%. Thus, there would be a different employer subsidy depending on age. Is this legal?

[Brian Gilmore]

Sounds like you're in a small group age-rated plan.  I don't see any issues with that approach under the Section 125 cafeteria plan nondiscrimination rules that govern employee contribution rates.

[EBECatty]

I seem to recall there being open questions about the impact of fixed-amount (as opposed to percentage) subsidies for age-banded plans under the ADEA, although I haven't followed the issue closely. Do most agree this is not a concern?

[Peter Gulia]

Consider also which laws against age discrimination (if any) apply to this employer.

[Brian Gilmore]

Yes, good point.  Here's the reg on point under the ADEA.  Still seems fine because it's a consistent percentage.

29 CFR §1625.10(d)(4)(ii):

(ii)   As a condition of participation in a voluntary employee benefit plan. An older employee within the protected age group may be required as a condition of participation in a voluntary employee benefit plan to make a greater contribution than a younger employee only if the older employee is not thereby required to bear a greater proportion of the total premium cost (employer-paid and employee-paid) than the younger employee. Otherwise the requirement would discriminate against the older employee by making compensation in the form of an employer contribution available on less favorable terms than for the younger employee and denying that compensation altogether to an older employee unwilling or unable to meet the less favorable terms. Such discrimination is not authorized by section 4(f)(2). This principle applies to three different contribution arrangements as follows:

(A)   Employee-pay-all plans. Older employees, like younger employees, may be required to contribute as a condition of participation up to the full premium cost for their age.

(B)   Non-contributory (“employer-pay-all”) plans. Where younger employees are not required to contribute any portion of the total premium cost, older employees may not be required to contribute any portion.

(C)   Contributory plans. In these plans employers and participating employees share the premium cost. The required contributions of participants may increase with age so long as the proportion of the total premium required to be paid by the participants does not increase with age.