Does anyone know how to treat ER paid Health Insurance premiums for a self funded plan who allocates a liability on their payroll records for the ER portion of the Health Isurance premiums, but does not actually contribute this allocated amount to the self funded plan? They are just tracking the ER cost as a liability on the payroll reports. The question at hand is whether or not these allocated ER premiums should get taken into account when running the Key Employee Concentration Test when they are NOT actually paid; or should the EE portion of the premiums be the only item included in the Key Employee Concentration Test?

My understanding is the ER is just tracking these costs on their payroll. The only amounts being funded into the Self Funded Health Insurance plan are the various EE premiums being paid.

Thanks -

Nathan

Are you sure that the ER cost is being run through the payroll system ? I do not recall ever haviing seen any "column" or otherwise which could be used for such a purpose. Also, How do they determine how much for each particular employee ?

George,

The client's payroll report has three sections for each EE: Earnings, Deductions & Liabilities. The EE's Health Insurance premium deductions show up under the Earnings section. The question I am having is under the Liabilities section the ER is tracking the ER cost of the Health Insurance premium for the various groups, (EE, EE+1, EE+2, EE+Family), but these amounts are not actually being set aside by the ER into the Self Funded Health Insurance pot, they are simply being allocated or linked to each employee on the payroll report.

In this situation the ER is not actually paying any portion of the EE's Health Insurance Premium, thus my thought is that these amounts should be excluded when we are running the 25% Concentration Test as the ER is not contributing or funding any of the Health Insurance Premiums. Not sure why they are tracking things this way, they just are.

Thanks,

Nathan

It's not uncommon, especially with a self-funded plan. Just depends on the payroll system and the accounting needs of the employer; I can do several "accounting-only" calcs inside my payroll system. Generally you can do calcs based a rate table or based on factors like salary/payrate, age and years of service. Since a self-funded plan isn't receiving a premium invoice from an insurer, the payroll system is the best/easiest place to determine both EE and ER cost/liability. In fact some large companies do self-billing on some insurance, meaning they calculate and remit the premium to the insurer and the insurer accepts their computation; a well-programmed payroll system is essential for that.


Because even if they don't fund the ER portion until later, accounting standards require them to estimate their potential liability (especially if an ER contribution was used in rate setting for the self-funded plan). And since they presumably are using a VEBA, they may not fund by pay period because of the various rules that complicate tax deductibility of VEBA funding.


Back to the question at hand, I presume you're referring to the Sec 125 concentration test? Ignoring for a moment any possible side discussion of whether ER contributions should even be used in the conc test, if the ER amount is not funded, how do you justify it as a contribution for use in the test?

masteff,

Thanks, I understand were you are going with the discussion of ER paid Health Insurance premiums and whether they should be included in the 25% Concentration Test. You have hit upon the main question I had which was if the ER is only tracking the expense as a liabiltiy and not actually funding the plan then it should not be part of the 25% Concentration Test. It makes sense that it would not be included in the 25% Concentration Test, I just have not seen this liability being tracked before when the premiums are not funded. Thanks for info.

Nathan