Nondiscrimination regulations require that employee benefits are applied to employees in a nondiscriminatory manner – for example eligibility, benefits, classification and wait periods.  If your company treats all employees equally, then you do not need to be concerned with nondiscrimination testing.  However, if your company has different benefits for different classes of employees or if your company institutes different waiting periods for different classes of employees you may have an issue of concern.

There are three (3) basic kinds of nondiscrimination testing that may apply to your employee benefit plans.

First, Internal Revenue Code §105(h) under the Public Health Services Act (also known as ERISA) has always applied to self-insured health plans. IRS penalties include, but are not limited to, highly compensated individuals losing a tax benefit, re-filing and reporting necessary by the company and the individuals, audit, etc. . . .

Second, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act 2010 added §2716 to the Public Health Services Act (ERISA) which requires that a group health plan other than a self-insured plan (meaning fully insured health plans) must also satisfy the requirements of Internal Revenue Code §105(h). Although for fully insured employers the IRS penalties include but are not limited to self-reporting, excise tax, civil money penalties, and/or civil action to compel nondiscriminatory benefits.

Third, Internal Revenue Code §125 pre-tax benefit plans, such as Flexible Spending Account (FSA) or Health Savings Account (HSA) benefits, must comply or face the penalty of losing safe harbor tax benefits from the inception of the accounts, re-filing and reporting necessary by the company and the individuals, audit, etc. . .

At your request, a Relph Account Executive can help you understand and perform preliminary testing needed for your benefits.

This alert is for informational purposes only and not intended to be legal advice. Transmission is not intended to create and receipt does not establish an attorney-client relationship.  Legal advice of any nature should be sought from your legal counsel.