Posted: February 26, 2019 by Paul Roberts
Under ERISA nondiscrimination rules, employers are allowed to offer different contributions and waiting periods to different classes of employees. The rules state, “A plan or issuer 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 bona fide employment-based classification consistent with the employer’s usual business practice.”
In order to implement different employee classes, employees must be provided sufficient notice of the classification rules in their ERISA documents. Of course, the classifications may not discriminate against employees.
The law further elaborates that to determine whether an employment-based classification is bona fide, it must be “on the basis of all the relevant facts and circumstances, including whether the employer uses the classification for purposes independent of qualification for health coverage (for example, determining eligibility for other employee benefits or determining other terms of employment).” Essentially, these classes of employees must be used in other parts of the employer’s business, not only for health care. This is to ensure nondiscrimination within the plan.
Examples of classifications that, based on all of the relevant facts and circumstances, may be bona fide include:
- Full-Time (FT) versus Part-Time (PT)
- Membership in a collective bargaining unit
- Different occupations
- Different geographic location
- Date of hire (DOH) or length in service
- Current versus former employee status
Age is not an eligible class. This means employers are prohibited from contributing a higher/lower dollar amount or percentage to older employees’ (more expensive) premiums, compared to what it contributes to other employees’ premiums. Employers must also be cautious of potential violations of the Age Discrimination in Employment Act (ADEA).
To comply with the ERISA nondiscrimination regulations, employee classes within the health plan must:
- Be based on bona fide business differences
- Treat all similarly-situated employees equally
- Not discriminate against unhealthy people
- Spell out the requirements for class and benefits in the ERISA Plan Document
Insurance carriers, however, may establish their own underwriting rules – including the ability to vary employer contributions or waiting periods by job classifications or any other aforementioned class. It is important to check with your Word & Brown representative to ensure that basing contributions or waiting periods on class does not violate a carrier’s underwriting policies.
Due to the complexity of the law in this area, any employer that is considering offering different waiting periods or contributions to different groups of employees should consult with a knowledgeable benefits attorney for guidance regarding its plan(s) and the specific nondiscrimination rules that may apply.
For more information on ERISA, please refer to the Department of Labor’s Overview: The Employee Retirement Security Act of 1974 (ERISA).
More about the author:
Paul Roberts is the Director of Education and Market Development at the Word & Brown General Agency, responsible for leading Word & Brown’s educational initiatives and providing oversight of the WBCompliance team in California and Nevada. Paul is a tenured veteran in the health insurance industry, carrying a long history of health insurance experience and an education in business management. He has performed nearly every operational role at Word & Brown General Agency in his fourteen-year tenure, and was a leader in the creation and development of Word & Brown’s legendary in-house Compliance team. Paul is passionate about education and keeping health insurance brokers and employers in-line with compliance. Paul can be found at many industry events across the nation delivering CE, HRCI and SHRM courses, educating himself, advocating for the role of the agent, and working directly with brokers and employers. This gives Paul the best ability to innovate and improve Compliance and educational resources to support the businesses and abilities of brokers. Paul is passionate about education, diversity and helping others. He is grateful for his opportunity to support both brokers and employers and is committed to your success.
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