We are a fast-food biz that opens in the summer. Our EEs haven’t asked us to provide insurance. They’re very young, or are covered on spouse’s/parent’s, or they also work elsewhere and work for us on a part-time, seasonal basis. Won’t a MERP be costly? : FAQ/Blog/Solutions
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We are a fast-food biz that opens in the summer. Our EEs haven’t asked us to provide insurance. They’re very young, or are covered on spouse’s/parent’s, or they also work elsewhere and work for us on a part-time, seasonal basis. Won’t a MERP be costly?

by Tom Luker on 05/01/15

There are different ways to establish your MERP/HRA with legally required eligibility rules. In 1980, the IRS established special “non-discrimination” rules, based on ERISA concepts that were originally established in 1974 and further expanded in 1978 as part of the “Cafeteria Plan”/”Flex Plan” legislation.

  • The 1980 rules were specific to Section 105 MERPs, which until that time the eligibility rules could be limited to “groups” such as “all executive officers” or “all managers or higher.” You can imagine how that was discriminatory! 
  • Now, the rules of “non-eligibility” consists of the following definitions:
    • [1] Part-time employees working less than [____] hours per week average up to 25 hours per week;
    • [2] Seasonal employees completing less than [____] months per year up to a “safe harbor” seven months;
    • [3] Employee’s age less than [____] years of age up to 25;
    • [4] Current employees completing less than [____] months service up to a maximum of 36 months;
    • [5] Future employees completing less than [____] months service up to a maximum of 36 months.
  • You can see with this legal arrangement, you could limit your plan participation to ONLY those who are:
    • [1] More than your definition of “part-time” or;
    • [2] More than your definition of “seasonal” or;
    • [3] More than your definition of “minimum” age or;
    • [4] and [5] Have been employed less than your definition of “loyal” EEs.
  • In your case you could LIMIT your MERP just to these employees:
    • Who work MORE THAN seven months per year or;
    • Who AVERAGE more than 25 hours per week or;
    • Who are AT LEAST age 25 or;
    • Who have been employed by you for at least 36 months.
  • Please note that a major requirement of PPACA now in effect that EEs in a medical plan must be enrolled within 90 days, so the medical/dental/vision MERP is limited to 90 days waiting. Dependent Care [Sec. 129], Commuting [Sec. 132], Tools [Sec. 62] reimbursement plans do not have this element. TLC provides all of those plans.
  • You must remember, that if you have not yet FORMALLY employed your spouse at all in the past [with a W-2 income], you can’t start with CURRENT EEs definition of more than 36 months. This is because your spouse would have to wait for three years to come into the plan, but you could use 36 months for FUTURE EEs before they’re eligible.
  • See the above comments regarding EEs who are limited-term, part-time, young or seasonal for strategies. These seasonal businesses can be quite varied, including seasonal-related peak activity like yours and might even be the bed-and-breakfast in a tourist area, tour guides/camps/fishing-hunting guides and the like. We’ve had interesting solutions that include:
    • A wreath-making C-Corp in northern Wisconsin who had over 155 EEs. There were seven family stockholders in the business. Of the 155 plus EEs, only the seven stockholders worked more than seven months a year, since the main harvesting, building and shipping of wreaths all over the world was from October through December. These seasonal EEs were not expecting benefits or even wanting benefits and preferred to be paid a good cash wage.
  • Two other examples were restaurants:
    • One was a breakfast and lunch cafe with 11 EEs, with the sole proprietor and his wife putting in about 70 hours per week each. The wife had never been formally employed, and she had over $25,000 uninsured cancer expenses in one year. With none of their other EEs working more than 25 hours per week, she was the only eligible EE. Even though their CPA had asked us to help, the TPA with whom we were working questioned putting $30,000 as the maximum limit for OOP expenses as “too liberal.” We explained that she works almost 80 hours per week and is certainly worth $30,000 in compensation annually plus a modest W-2 cash wage! Sadly, she died within two years, and the restaurant was sold, but they saved lots of taxes for two years. Their CPA was happy.
    • One other restaurant-type business was a popular banquet/wedding facility with 55 EEs. Again, the sole proprietor husband formally hired his wife for the first time, and she was the only EE working more than 25 hours per week, including the wait staff, three bartenders and two cooks. In this case, virtually all of the EEs had spouses who worked elsewhere and had generous benefits.
  • The Adoption Agreement can be changed once a year to reflect change.

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