Section 125

This is the Section 125 category of the Broad REach Benefits blog. At Broad Reach Benefits, we focus on employers that have between 30 and 500 benefit eligible employees. We’re employee benefit specialists, not a big box brokerage firm or payroll company with a sales force peddling policies.

Treating Employees Differently- Health Plan Rules

Do you want to be selective and treat employees differently for purposes of group health plan benefits?  For example, some employers may consider implementing the following plan designs:

  • A health plan “carve-out” that insures only select groups of employees (for example, a management carve-out);
  • Different levels of benefits for groups of employees; or
  • Employer contribution rates vary based on employee group.

In general, employers may treat employees differently, as long as they are not violating federal rules that prohibit discrimination in favor of highly compensated employees. These rules currently apply to self-insured health plans and arrangements that allow employees to pay their premiums on a pre-tax basis. The nondiscrimination requirements for fully insured health plans have been delayed indefinitely.

Employers should also confirm that any health plan rules do not violate other federal laws that prohibit discrimination. In addition, employers with insured plans should confirm that carve-out designs comply with any minimum participation rules imposed by the carrier.

Health Plan Design – General Rules

Nondiscrimination Tests

In general, a health plan will not have problems passing any applicable nondiscrimination test when the employer treats all of its employees the same for purposes of health plan coverage (for example, all employees are eligible for the health plan, and the plan’s eligibility rules and benefits are the same for all employees). However, treating employees differently may make it more difficult for a health plan to pass the applicable nondiscrimination tests. Examples of plan designs that may cause problems with nondiscrimination testing include:

  • Only certain groups of employees are eligible to participate in the health plan (for example, only salaried or management employees);
  • The health plan has different employment requirements for plan eligibility (for example, waiting periods and entry dates) for different employee groups;
  • Plan benefits or contribution rates vary based on employment classification, years of service or amount of compensation (for example, management employees pay a lower premium or receive additional benefits); or
  • The employer maintains separate health plans for different groups of employees.

Before implementing one or more of these plan designs, employers should confirm that the arrangement will comply with any applicable rules that prohibit discrimination in favor of highly compensated employees. Under currently applicable law, if a health plan is discriminatory, highly compensated employees will lose certain tax benefits under the plan. […]

By |April 19th, 2019|Compliance, Employee Benefits, Medical, Section 125, Uncategorized|Comments Off on Treating Employees Differently- Health Plan Rules

When can an employee change his or her elections under a Section 125 plan?

One of the most common questions we receive pertains to Section 125.  And here it is: When can an employee change his or her elections under a Section 125 plan?

Under a Section 125 plan, participant elections generally must be irrevocable until the beginning of the next plan year. However, when a participant experiences one of several specific recognized events, he or she may be permitted to make a change in election that is consistent with the event. A change in election must be made prospectively, except in the few cases where HIPAA requires that a change be made effective retroactive to the date of the event.

A Section 125 plan may allow a participant to change his or her elections related to Section 125 plan benefits (other than flexible spending accounts) upon the occurrence of any of the following events:

  • Change in status (for example, employee’s legal marital status, number of dependents, employment status, dependent eligibility change or change in residence);
  • Significant cost increase;
  • Significant curtailment of coverage;
  • Addition or elimination of benefit package option;
  • Change in coverage under other employer’s plan;
  • Loss of group health coverage sponsored by a governmental or educational institution;
  • FMLA leaves of absence;
  • COBRA qualifying events;
  • HIPAA special enrollment events;
  • Judgment, decree or court order, such as a Qualified Medical Child Support Order (QMCSO); or
  • Medicare or Medicaid entitlement.

Now you have the list!

By |July 27th, 2012|Employee Benefits, Section 125|Comments Off on When can an employee change his or her elections under a Section 125 plan?