Column 74 Discrimination rules

Discrimination rules

 

Remember when you were growing up and your Mom said there were lots of fish in the sea?  She likely told you to be "discriminating" in your choice of a partner because she wanted you to be selective and pick the best one.

In benefits, discrimination can be a problem.   An employer may want to favor one group of employees over another or even favor an individual employee over another.  To do so, you must proceed with caution. 

In general, defining a "class of employees" and treating them all the same is not considered discrimination.  Unless that group happens to be the Highly Compensated Employees. 

 

There are different rules for different plans:  Health Plans, Retirement Plans, Cafeteria plans. In essence, the rules are trying to be sure the plans aren't set up just to benefit the folks "at the top".  There are also different definitions of "the top" depending on the plan.

 

The Affordable Care Act (ACA) established new rules to prohibit this kind of discrimination in fully insured health plans. As of this writing, the IRS has yet to release final regulations.   Many employers continue to sponsor plans that may be discriminatory in favor of upper management.  Restaurants are one of the most prevalent.  They will insure managers and office staff, but not the service related employees.  It is expected that this will change for 2016.

Self-insured plans must pass their own series of tests to ensure that highly compensated individuals are not favored.  Highly Compensated Individuals are:
                1) the five highest paid officers of the employer

2) A 10% or more Shareholder of the employer or

3) An individual among the 25 highest paid. Of all employees

Cafeteria plans are subject to discrimination testing and in fact there are three separate tests that must be satisfied. 

First is the eligibility test.  This examines the number of HCI (Highly Compensated Individuals") compared to the rest of the employees that are eligible for benefits. To be a HCI you must be:

1)      Officer of the employer

2)      5% shareholder of the employer or

3)      Have had compensation greater than $120,000.

4)      Note a spouse or dependent of someone who meets this category is considered an HCI

The second test is benefits and contributions.  This test looks to be sure those Highly Compensated Individuals do not have access to more pre-tax benefits than the rest of the group. All employees must have equal access to non-taxable benefits.

The final test is the "concentration test".  This is not evaluating if you can multi-task.  This test says that key employee benefits cannot exceed 25% of the total benefits to all employees.  A Key Employee is different from Highly Compensated Individual.

In 2015 to be a key employee you must:

1)      An employee who is a 5% owner

2)      An employee who is a 1% owner and who is paid $150,000 or more

3)      An office paid more than $170,000.

There have been many changes to the Cafeteria or Section 125 plan rules.  If your group has a plan it is definitely time to review and look at all of your options.  In addition you want to be sure that all of the tests are being run to keep the plan in compliance.  Non-compliance can be very expensive.

Covered CA Update:

Open Enrollment season is upon us- started yesterday!  As part of the ACA (Affordable Care Act) individuals may enroll in an individual health plan without medical underwriting and no pre-existing condition exclusions will apply once insurance is effective.   Applications can be accepted from 11/15/2014 to 2/15/2015.  Remember that the penalty for non-compliance increase in 2015 is the greater of $325 per adult, $162.50 per child or 2 percent of household income.

Coverage may be secured on the Exchange (Covered CA) or off the Exchange.  The only reason to apply on the Exchange is if you think you will qualify for a premium subsidy due to your income status. Otherwise, avoid that site!!

As of this writing I can't help but wonder how the Covered CA website will perform.  During the week it has been up and down multiple times during the day, so it's going to be interesting to see if we are on the same roller coaster ride.  Tuesday November 18th, Peter Lee Director of Covered CA is scheduled to arrive in Redding on his bus tour.  Location is yet to be determined.  Those with hard questions:  He is the man to ask!  Be there and ask your questions.