Employee Benefits | FJG/FYI
Benefits Compliance FAQ
Question: We want to charge different employee contributions to several different groups of employees. How can we structure our eligibility descriptions to accommodate this without running into discrimination issues?
Answer: According to the ERISA regulations (26 CFR 54.9802-1(d)(1)) and the interim final rules governing the provisions prohibiting discrimination (29 CFR 2590.702) an employer may set different “classes” of employees or groups of “similarly situated individuals” within a company, as long as the groups are based on “bona fide” employment classifications and the groups are not created to influence and/or separate those with health conditions.
26 CFR 54.9802-1(d)(1) states: “…a plan may treat participants as two or more distinct groups of similarly situated individuals if the distinction between or among the groups of participants is based on a bona fide employment-based classification consistent with the employer’s usual business practice … examples of classifications that … may be bona fide include full-time versus part-time status, different geographic location, membership in a collective bargaining unit, date of hire, length of service, current employee versus former employee status, and different occupations. However, a classification based on any health factor is not a bona fide employment-based classification, unless the[y are] permitting favorable treatment of individuals with adverse health factors.”
Special attention and consideration needs to be given to the formation and description of the “classes”, as to not inadvertently violate other nondiscrimination rules. For example, a Section 125 Cafeteria Plan may not discriminate in favor of highly compensated employees, so if one “bona fide” group consisted only of highly compensated employees, compared to the other “bona fide” groups, there could be a risk of not passing the Section 125 Cafeteria Plan’s non-discrimination tests. Further, self-insured plans (including health Flexible Spending Accounts) must not discriminate based on age or years of service. Additional legal advice may be needed to formalize class eligibility descriptions.