Scope of Retiree Safe Harbor Provision, 26 C.F.R. § 1.105-11(c)(3)(iii)

[BJT]

Hello-

I'm hoping some of you could point me in the right direction with regard to the Retiree Safe Harbor provision under 26 C.F.R. § 1.105-11(c)(3)(iii). My understanding is that an HRA provided to retired or retiring employees are not subject to Section 105(h)'s nondiscrimination rules, unless one of the retired/retiring employees is a participant, where the plan must then provide the same "type of benefits" and "dollar limitations" for all other retired participants.

What if the HRA plan is provided exclusively to highly compensated individuals (i.e., only retired HCIs are "participants")? My understanding of 26 C.F.R. § 1.105-11(c)(3)(iii) indicates that this would be permissible so long as the same type of benefits and dollar limitations are provided to all other retired participants, even if the plan's participants are made up exclusively of HCIs.

Is there any IRS/Treasury guidance discussing the scope of 26 C.F.R. § 1.105-11(c)(3)(iii)? Is there any reason to think that the above interpretation is wrong? I understand that this is inconsistent with most, if not all, other nondiscrimination rules for self-insured plans, but I'm hung up on the "retired participants" language under 26 C.F.R. § 1.105-11(c)(3)(iii).

Thank you!

[Brian Gilmore]

My understanding is that safe harbor applies to the benefits test component of the §105(h) nondiscrimination rules.  If the retiree HRA is made available only to HCIs, that strikes me as an issue under eligibility test component.  If it just happens that only HCIs have participated--even though other non-HCIs who retire are also eligible--that would be a better situation.

Here's some IRS guidance that seems to indicate the same approach: 

https://www.irs.gov/pub/lanoa/pmta01373_7367.pdf. 

Generally, all benefits under the Plan are available to all participants and to their dependents on the same basis. A different benefit schedule applies with respect to retirees. Under §1.105-11(c)(3)(iii) of the regulations, benefits provided to a retiree are generally not considered to be discriminatory benefits if the benefits provided to retired employees who were highly compensated individuals are the same for all other retired participants. Because the benefits under the Plan are the same for all retirees and their dependents, the Plan passes the benefits test.

They appear to analyze the retiree safe harbor for benefits test purposes only.