CWA Health Care Reform Update: Benefits for High Compensated Employees

Are there rules regarding the treatment of benefits that apply to highly compensated employees?

Since 1980 it has been illegal for self-insured employer plans to provide health benefits that discriminate in favor of “highly compensated employees”, defined as the 5 highest paid officers, shareholders who own more than 10% of stock, or those in the highest paid 25% of employees. A self-insured plan that was found to be discriminatory would lose its tax advantaged status and covered employees would be forced to pay the appropriate taxes on all benefits received.

The Affordable Care Act subjects non-grandfathered insured employer plans to this same requirement. Insured plans found to be offering discriminatory benefits will be subject to fines equaling $100 per discriminated-against employee for each day that discriminatory benefits were offered.

However, the IRS has stated that it will not enforce this regulation until it has issued further rules clarifying how employers will be expected to comply.

Definitions of terms in this answer, including “self-insured plan”, “insured plan”, and “grandfathered plan”, can be found here: CWA Factsheet

Review of the current state of the non-discrimination regulation here: Employee Benefit News