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 the underwriting – participation rules the Insurance Companies are imposing in the mean time.

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

Technical Resources

National Underwriter Healthcare Reform Facts Q & A 239 et seq – Q & A 316 in 2016 Version
Explanation 2716

Discrimination Testing IRC Section   § 105 (h) IRC Section   § 105      §106

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

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

More Pages in the Management Carve Out Section


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2 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?

  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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