W. Joseph Hatley, Monday, December 27, 2010 | Filed under: Miscellaneous
Senior school district administrators often have clauses in their employment contracts under which the school district pays both their individual health insurance premiums, and the additional premium for spouse and family coverage. This is generally not paid for lower-ranking employees of the district.
The 2010 health reform law includes a nondiscrimination rule that raised questions about the use of such clauses. Under the rule, insured group health plans (other than certain "grandfathered" plans) are prohibited from discrimination in favor of highly compensated participants in terms of either (a) eligibility to participate, or (b) the benefits provided under the plan. The employer/sponsor of plan violating this law is subject to an excise tax of $100 per day per non-highly compensated employee who is discriminated against. For larger school districts with hundreds of employees...well, you can do the math, and it isn't pretty.
We had received several inquiries about whether the new law would trigger penalties against school districts who are paying family premiums for senior administrators only. Apparently, the IRS received similar questions, because it issued last week a
notice that insured plans will not be subject to the penalty until after the IRS issues further guidance on application of the nondiscrimination rule. We can't say for certain when that guidance will be issued, but the deadline for submitting comments to the IRS is March 11, 2011, so further word probably won't be forthcoming until the summer, at least.
In the meantime, new contracts and extensions of existing contracts should account for the possibility that this benefit could become impermissible.