Section 159 Post-Sec. 89 Welfare Plan Nondiscrimination Rules

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Post-§ 89 Welfare Plan Nondiscrimination Rules

The repeal of I.R.C. § 89 restored the separate nondiscrimination rules that applied depending on the type of plan to be tested. The following chart summarizes the applicable rules.

Type of Plan

+---------------------+----------------------+--------------------------+--------------------------+--------------------------+---------------------------+---------------------------+
                | | Accident and Health | | Group Term Life | Dependent Care | Cafeteria Plan (I.R.C. | Educational |
                | | (including medical, | | (I.R.C. § 79) | Assistance (I.R.C. | § 125) | Assistance (I.R.C. |
                | | dental, vision, | | | § 129) | | § 127) |
                | | AD&D, and LTD | | | | | |
                | | (I.R.C. § 105(h)) | | | | | |
                +---------------------+----------------------+--------------------------+--------------------------+--------------------------+---------------------------+---------------------------+
                | | INSURED | SELF-INSURED* | | | | |
                +---------------------+----------------------+--------------------------+--------------------------+--------------------------+---------------------------+---------------------------+
                | Discrimination Test | None | Eligibility: plan must | First $50,000 of | Eligibility: must | HCP will not receive | Eligibility: must |
                | | | cover (1) 70% or more | group-term is | benefit a classification | tax-free benefits if plan | benefit a classification |
                | | | of all employees; (2) if | excludible from | of employees that does | discriminates as to | of employees that does |
                | | | 70% or more of all | income of "Key | not discriminate in | eligibility or benefits; | not discriminate in |
                | | | employees are | Employee" only if no | favor of HCEs. | Eligibility: plan must | favor of HCEs. |
                | | | eligible, then 80% or | discrimi- nation in | Benefits: (1) average | benefit a class of | Benefits: no more than |
                | | | more of all eligible | favor of Keys. | benefit to non-HCEs | employees that does | 5% of benefits may |
                | | | employees; or | Eligibility: must | is at least 55% of the | not discriminate in | be payable to |
                | | | (3) reasonable | satisfy one of the | average benefit | favor of HCP (same | 5% owner. |
                | | | classification. | following four tests: | provided to HCEs (if | test as for qualified | |
                | | | Benefits: all benefits | (1) cover 70% of | benefits are provided | pension plans). | |
                | | | available to HCI are | employees; | through a salary | Benefits: special rule | |
                | | | also available to all | (2) at least 85% of | reduction plan, this | for health | |
                | | | other participants. | participants are non- | test may disregard any | benefits - not | |
                | | | | Keys; (3) eligibility | employees earning | discriminatory if the | |
                | | | | provisions are | $25,000 or less); or | contribution

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