Under ERISA, employers sponsoring benefit plans are generally permitted to establish different employee classes for purposes of benefit eligibility, waiting periods, and employer contribution strategies. These classifications must be based on bona fide business criteria, documented in plan materials, and administered consistently.
ERISA’s Legal Framework for Employee Classes
ERISA governs employer-sponsored benefit plans, including group health plans, self-funded plans, retirement plans, and ancillary welfare benefits.
At a high level, ERISA allows employers to:
- Define which employees are eligible for benefits
- Establish waiting periods
- Vary employer contribution levels
- Structure benefit tiers
…so long as employee classifications are:
- Based on legitimate business reasons (“bona fide”), and
- Not designed to improperly discriminate against protected groups or highly compensated individuals, and
- Clearly described in the employer’s ERISA plan documents.
Common Bona Fide Employee Classes Under ERISA
While ERISA does not provide a single definitive statutory list of permissible job classes, regulatory guidance and long-standing industry practice generally recognize the following as acceptable bona fide classes when used appropriately:
- Full-time vs. part-time status
- Geographic location
- Date of Hire (DOH) or service-based categories
- Length of service
- Occupational or job category
- Union vs. non-union status
- Current vs. former employees
These classifications must reflect real “bona fide” business distinctions, not simply benefit design preferences.
Important: The permissibility of any class depends on context, consistency, and documentation. Employers should consult ERISA counsel to confirm how classifications apply to their specific plan design.
Age Is Not a Standalone Permissible Class
Employers may not vary benefit eligibility, waiting periods, or contribution levels based solely on age.
However, employers may use percentage-based contribution methods (e.g., 75% of premium), even though dollar contributions vary due to ACA age-rating rules in the fully insured small-group market. This distinction is permitted because the classification is not age-based, even if age indirectly affects cost/premium.
Plan Documentation Requirements
ERISA requires employers to clearly document employee classes and benefit rules in formal plan materials, including:
Insurance carriers do not prepare these documents. The employer, as plan sponsor and plan administrator, remains responsible regardless of whether coverage is fully insured, self-funded, or level-funded.
Interaction With Other Laws
While ERISA provides flexibility in defining employee classes, other laws may impose additional constraints, including:
- Internal Revenue Code nondiscrimination rules
- ACA market reforms
- HIPAA nondiscrimination provisions
- State insurance laws (for fully insured plans)
- Carrier underwriting rules
Compliance must be evaluated holistically, not under ERISA alone.
Carrier Rules for Fully Insured Group Health Plans
Even when ERISA permits class-based distinctions, insurance carriers may restrict or prohibit them under underwriting guidelines.
Employers considering class-based variations should:
- Review carrier underwriting rules
- Confirm carrier approval before implementation
- Coordinate with a licensed broker and general agent
Carrier restrictions often apply to:
- Waiting periods
- Employer contribution strategies
- Eligibility carve-outs
Special Rules – Employee Classes Under ICHRAs
While ERISA generally permits flexible use of employee classes, special and unique rules apply to Individual Coverage HRAs (ICHRAs).
Under ICHRA regulations:
- Employers must assign employees to specific classes if the ICHRA will be offered to one or more classes of employees, and a traditional group plan will be offered to other class(es).
- Employees within the same class cannot be given a choice between a group health plan and an ICHRA
- Allowance amounts must be applied uniformly within a class
Minimum Class Size Rule (ICHRA-Specific)
When an employer offers:
- a traditional group health plan to some classes, and
- an ICHRA to other classes,
Certain ICHRA-eligible classes must meet federally defined minimum size thresholds based on employer size. These rules exist to prevent employers from steering small, high-risk groups into the individual market.