Discriminatory Benefit package

Betzi

We offer an 18% on base salary benefit package which is a cafeteria plan which employees can choose their options (2 are mandated). What is the IRS ruling making this discriminatory if it is 18% for everyone even though someone making $20000 would get $3600 for benefits and someone making $50000 would get $9000?

Thank You!

Scott Ruth

Section 125(g)(2) of the Internal Revenue Code indicates that such an
arrangement may be discriminatory if such credits can be used for any type of
health coverage (medical, dental, health FSA, etc.) and the plan includes highly
compensated employees. Highly compensated employees generally include officers,
5% or greater owners, persons who made $85,000 or greater last year, and a
spouse or dependent of any of these people.

Note that as these rules are very complex, you might want to seek specific
advice as to whether redesign is necessary.