Does your system perform nondiscrimination testing for Section 125 cafeteria plans?

Wrap360 does not perform nondiscrimination testing. The basic cafeteria plan nondiscrimination tests under Internal Revenue Code Section 125 apply to premium conversion benefits offered by an employer (i.e., testing to ensure that pre-tax employee contributions under a cafeteria plan do not discriminate in favor of highly compensated employees.) However, these Section 125 nondiscrimination tests are derived from 2007 proposed regulations which have never been finalized, and there is little agency guidance regarding the implementation of these regulations.

As with all nondiscrimination rules regarding the administration of employee benefits, it is best to treat all employees equally. If the premium conversion benefits offered by an employer appear to favor highly compensated employees, the employer should seek the advice of a knowledgeable ERISA attorney, benefits specialist, or the IRS.

Please note, however, that Wrap360 offers a helpful chart on Classing and Non-Discrimination Rules for Group Health Plans in our Support Tools section. Please review the chart and consult with benefits counsel for individualized guidance.

 If a company has common ownership of multiple businesses with different EINs and different plans, do I need to create a Wrap SPD and Plan Document for each?

Under ERISA, a controlled group is seen as a single employer. So, if the entities in the controlled group have different benefits the group would have a choice to create: one Wrap Plan Document with multiple Wrap SPDs, or separate plans, each with its own Wrap Plan Document and Wrap SPD.

If you choose one Wrap Plan Document and multiple Wrap SPDs, ERISA requires that each SPD clearly identify on the first page of the text the class of participants and beneficiaries for which it has been prepared and the plan's coverage of other classes. You may wish to use the following sample language:

"This SPD has been prepared especially for the [describe class of employees—e.g., workers at the New York Plant]. The Plan also covers [list all other classes of employees covered by the Plan]."

If you have multiple employers under common control, the additional employers should be listed as Participating Employers when entering your general plan information. There is no need to include the EIN numbers of the Participating Employers under common control. However, should you wish to include this information, the templates can be customized in Microsoft Word.

For plans maintained by one employer or a group of employers under common control who have multiple EINs and are creating one Wrap Plan Document with multiple Wrap SPDs, you should simply pick one EIN to use and use this employer as the Plan Administrator. Typically, it is the EIN of the parent company, but it can generally be any of the EINs.

For employers creating separate Wraps, each entity's EIN would be used for each corresponding Wrap.

 What should I enter for eligibility requirements if different benefits are offered to different classes of employees (e.g., full-time vs. part-time)?

One way to address this is to create two separate plans (with different plan numbers) for the two different classes, rather than letting one group know that another has different benefits. 

Another option is to have one plan, but distribute two Wrap SPDs (e.g., one for full-time employees and another for part-time employees) so that employees in each class see only the benefits information that applies to them. In such case, ERISA requires that each SPD clearly identify on the first page of the text the class of participants and beneficiaries for which it has been prepared and the plan's coverage of other classes. You may wish to use the following sample language:

"This SPD has been prepared especially for the [describe class of employees—e.g., hourly employees, workers at the New York Plant, salesmen, employees hired before 2010, etc.]. The Plan also covers [list all other classes of employees covered by the Plan]."

Please Note: Wrap360 and its employees and officers are not permitted to offer legal advice. These FAQs are provided for general information purposes only. As the answers to specific questions may vary based on federal or state law, as well as on company documents for the issues in question, it would be prudent to consult knowledgeable benefits counsel for individualized guidance.