Can we give better benefits to higher wage employees & officers?

Employers will no longer be able to exclude employees or give better benefits to high wage employees based on salary  under §2716, except for Grandfathered Plans (Plans in effect prior to ObamaCare)

Prior to Health Care Reform, Federal Tax Rules prohibiting Salary Discrimination for Similary Situated Employees only applied to Self Insured Plans under 26 USC §105 h.

However, the IRS is not enforcing this rule as final regulations have not been issued. (Notice 2011-1)  I googled & googled and as of 1.9.2018, still do not find ANY final regulations!  Trumps Executive Order #13765 to minimize the burden of the ACA – Obamacare and #13771 to minimize regulations – one in two out, I guess mean that regulations won’t happen.

Check out Long Term Care, Dental & Vision and Life Insurance
where Executives can STILL have benefits the others don’t!

Section §106 is the biggest break there is in the Tax Code, even more than Mortgage Interest.


§2716 (a) IN GENERAL. The plan sponsor of a group health plan (other than a self-insured plan) may not establish rules relating to the health insurance coverage eligibility (including continued eligibility) of any full-time employee under the terms of the plan that are based on the total hourly or annual salary of the employee or otherwise establish eligibility rules that have the effect of discriminating in favor of higher wage employees.

(b) LIMITATION. Subsection (a) shall not be construed to prohibit a plan sponsor from establishing contribution requirements for enrollment in the plan or coverage that provide for the payment by employees with lower hourly or annual compensation of a lower dollar or percentage contribution than the payment required of similarly situated employees with a higher hourly or annual compensation.  (Patient Protection & Affordable Care Act  *  SEC. 2716. Section 2716 HR 3590 Page 17)

Latest Attorney Interpretations of pending final regulations & Guidance

Please note that the “Final Rule” (2.27.2013 13416 Federal Register Vol 78)  allows an Open Enrollment Period where a Small Group can enroll without meeting participation or contribution requirements.   

What and when is a Rule Final??? 33 CFR 1.05-50 –

What is and how do I know if my plan is Grand Fathered?

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What are the nondiscrimination rules under Code §105(h) that will apply to our insured plans if they lose grandfathered status?

Eligibility Test

Satisfy at least one of the following nondiscriminatory participation requirements:
 At least 70% of all nonexcludable (see below) employees must actually participate in the plan; or
 If at least 70% of all nonexcludable employees are eligible to participate, then 80% or more of the eligible employees actually participate in the plan; or
 The plan must benefit a classification of employees that the IRS has determined does not discriminate in favor of HCEs using standards that are applied under Code §410(b)
There are certain employees who can be excluded from consideration when determining if the plan passes the eligibility tests described above, if they are not eligible for coverage and:
 Have not completed at least 3 years of service at the beginning of the plan year.
 Have not attained age 25 at the beginning of the plan year.
 Are part-time or seasonal employees.
 Are covered under a collective bargaining agreement if the benefits are subject to good faith bargaining.
 Are nonresident aliens who receive no income from sources within the US.

Benefits Test

Under the subjective nondiscriminatory benefits test, the types and amounts of benefits provided to highly compensated  individuals must be provided to all participants. The rule also implies that contributions must be the same for each participating employee. In addition:

 Maximum benefit levels cannot vary based on age, years of service, or compensation.

Check our webpage on Insurance Company Participation & Contribution Requirements  

3 comments on “Salary Discrimination §2716 – Not enforced

  1. In your webpage above, you state that the IRS is still in a non-enforcement period on this issue until the rules are clarified.
    Is this still true or is that dated information?
    If we are currently in a non-enforcement status, can penalties be assess retroactively if we are no longer exempt once the rules are clarified?

    • Your question is beyond our pay grade. If you get a plan with us, we will check it out with the Insurance Company, etc. In the meantime, try the Art Gallagher FAQ’s above

  2. we converted to an individual plan for the remaining employee. The plan stayed with the same insurance co. but not in our companies name.
    So, would this still be be considered “grandfathered?
    ***I doubt it. See our response in the grandfathering section.

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