COBRA 105(h) Issue

We provide a COBRA subsidy to our employees.

In our self-insured plan, the benefit varies based on position.  For example, 6 months for staff and 12 months for Senior employees.  Is this a 105(h) issue?  If so, what does this mean?  The first 6 months would be non-taxable for everyone, but the second 6 months for Senior employees would be taxable as an "excess reimbursement"?

Thanks for any help!

105(h) is an exclusion from income, so the nondiscrimination rules apply only where you exclude the reimbursement from participant's income.

I am a little confused by Luke Baileys comment, so I apologize.  I do not believe Erisa bubs provided enough information to give him an answer.  105 essentially prohibits employers from providing more/better benefits to HCI. The categories of “staff and senior” are usually not acceptable.  Depending on the number of employees in each there may or may not be a105 non-discrimination issue.  Testing should occur and will clarify the issue.  Not saying you have an issue, but you could.

leevena, my comment is that the 105(h) nondiscrimination rules do not apply to a taxable reimbursement of premiums, i.e. a reimbursement that is included on the exec's W-2 in Box 1. The way I read ERISA-Bubs question, a nondiscriminatory group gets pre-tax reimbursement for first 6 months, then only the execs keep getting reimbursement after first 6 months, but the former employer will include the premiums on the execs' W-2's as taxable. In that case, 105(h) is not a problem.

Luke, thanks for the explanation, I was not even close to that answer.  Do have a question for you.  First off, I do not believe the group will have a 105 issue, but there is not enough info.  That said, the on the face benefits test of 105 does not allow for the HCI’s to be charged less premium.  Would this situation be different?

leevena, we seem to be like two ships passing in the night.

You're correct that the original question does not contain a lot of facts, but I think what it's positing is a situation in which, to simplify, for the first 6 months "everyone" (presumably, a nondiscriminatory group) gets the COBRA premium paid, pre-tax, and then after first six months only the HCIs get their premiums reimbursed, say for 12 months, but it's after-tax, i.e. the premiums after first 6 mos. will be on their W-2's. Because of the way 105 is written, this means that the plan passes on the first six months part, and then 105(h) ceases to be an issue as to remaining 12 months for HCIs. The reason is because 105(a) does not sate, "the contributions and benefits under a plan that meets the requirements of this section are nontaxable to all of its participants," but rather states that an employee must include benefits in income if the contributions under plan were excluded, subject to the exclusion under (b), which is in turn conditioned on compliance with (h). The contributions here for the discriminatory phase of the plan are not going to be excluded from income, hence 105(a) and the rest of 105 dos not apply to those at all.

Got it.  Thanks