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CCH® BENEFITS — 04/15/10

Health Reform 2010: Insured Plans Must Comply With New Nondiscrimination Rules

from Spencer’s Benefits Reports: For the next few weeks, Spencer’s Benefits Reports will highlight specific provisions in the new health reform law which affect employer-sponsored plans. Sec. 10105 and 10101(d) of the Affordable Care Act involves new nondiscrimination rules for insured plans:

Insured group health plans now must comply with the nondiscrimination requirements for self-funded plans, including rules that the plan does not discriminate in favor of highly compensated individuals as to eligibility to participate. In addition, the benefits provided under the plan may not discriminate in favor of participants who are highly compensated individuals.

Rules for nondiscrimination. Rules similar to those for self-funded plans are to be applied to insured group health plans, including rules for eligibility, benefits, and controlled groups.

A plan satisfies the eligibility requirements if the plan benefits

(1) 70% or more of all employees, or

(2) 80% or more of all the employees who are eligible to benefit under the plan if 70% or more of all employees are eligible to benefit under the plan.

Alternatively, a plan meets the eligibility requirements if it covers a classification of employees that does not discriminate in favor of highly compensated individuals.

Second Test

The second percentage test requires a minimum of 56% of employees (80% multiplied by 70%). The nondiscriminatory classifications test follows the rules of pension plans, which notes that reasonable classifications generally include specified job categories, compensation categories such as hourly or salaried, and geographic location. and similar bona fide business criteria. Identifying employees by name is not a reasonable classification.

Certain employees may be excluded from the eligibility tests, including employees who have not completed three years of service; employees younger than age 25; part-time or seasonal employees; union employees; and employees who are nonresident aliens and who receive no earned income.

In addition to the eligibility rules, all benefits provided to highly compensated employees must be provided to all other participants.

The controlled group rules for pension plans apply. These rules specify that employees of controlled groups of corporations and partnerships and employees of affiliated service groups are to be treated as employees of a single employer.

Highly compensated individual. Using the same definition as for self-funded plans, a highly compensated individual is defined as one of the five highest paid officers, a shareholder who owns more than 10% in value of the stock of the employer, or among the highest paid 25% of all employees.

Implications

Since the discrimination rules for self-funded plans were issued in 1980, employers have adopted fully insured plans to provide executives and key employees with tax-free reimbursements for out-of-pocket medical, dental, and vision expenses. These new prohibitions against discrimination in fully insured plans will compel employers to use other methods to reward executives.

Effective date. The provision is effective for plan years beginning on or after the date that is six months after the date of enactment.

CCH Law, Explanation And Analysis Of Health Reform Act Available Soon

CCH’s Law, Explanation And Analysis of the Patient Protection and Affordable Care Act of 2010 provides the most comprehensive and practical guidance available to professionals needing to make sense of this historic legislation. A hard-copy version of the book is available for $149.

For more information or to order the hard-copy version of the book, please call (800) 248-3248 or click http://hr.cch.com/Product/Product-ID7127.asp. Discounts are available for multiple copies.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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