Employers sometimes wish to offer different employer contribution levels or benefit waiting periods for different groups of employees. This is generally permissible under federal ERISA law, but strict compliance rules still apply, including compliance with other nondiscrimination laws in the HR space. Fully insured health insurance plans may also impose narrower limits that restrict contributions and waiting periods by job class, even though otherwise permitted by federal ERISA law. Furthermore, what’s permissible can also depend on the type of plan (retirement, health, self-insured vs. fully insured), and state law.
At a high level, contribution amounts and/or waiting periods can vary by certain job classes as prescribed by ERISA, provided those classes exist for legitimate bona fide business reasons (not simply to differentiate benefits) and are documented clearly in the employer’s ERISA plan documents. Because this area can raise potential discrimination concerns that may lead to employee complaints or potential litigation, consultation with an ERISA attorney is strongly recommended. The information here is general in nature and may apply differently depending on the employer’s specific circumstances.
ERISA Rules
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Legal framework: The Employee Retirement Income Security Act of 1974 (ERISA) governs employer-sponsored health benefit plans.
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Nondiscrimination: Employers may vary contributions or waiting periods by employee class, but those classes must be established for bona fide business reasons. ERISA law defines the types of permissible job classes that can be used.
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Plan documents: ERISA requires employers to detail eligibility, waiting periods, and contribution rules in a formal plan document (e.g., Summary Plan Description or ERISA Wrap). Carriers do not prepare these documents; they remain the employer’s responsibility as plan administrator in all circumstances, whether the plan is fully insured, self-funded, or level-funded.
Common Bona Fide Classes Under ERISA Generally Include:
- Full-Time (FT) vs. Part-Time (PT)
- Geographic location
- Date of hire (DOH)
- Length of service
- Current vs. former employee status
- Occupation or job category
- Collective bargaining unit membership
Note: These examples are drawn from generally accepted regulatory guidance and industry practice (e.g., DOL and IRS nondiscrimination interpretations). They are not provided as a definitive, verbatim list from the ERISA statute itself. Employers should consult legal counsel to confirm how these rules apply to their specific plan design.
Age is not an eligible class.
- Employers cannot vary contributions or waiting periods based solely on age.
- However, using a percentage contribution method (e.g., 75% of premium) is permissible, even though the dollar amounts will vary due to ACA’s age-banded premiums in the Small Group market.
Carrier Underwriting Guidelines for Fully Insured Group Plans
Even if ERISA allows class-based distinctions, carriers may prohibit or restrict them in their underwriting rules and guidelines for fully insured group health plans. Employers should:
- Review carrier underwriting rules before making changes.
- Confirm that carrier policy supports the intended contribution or waiting period variation.
- Work with a health insurance broker and a corresponding General Agent to understand carrier-specific limitations.
Employer Responsibilities
- Establish waiting periods and contribution practices, either uniformly for all employees or by bona fide classes of employees as outlined in ERISA law, and document them in the employer’s ERISA plan documents.
- Verify employee classes are bona-fide and consistent with ERISA.
- Ensure plan documents clearly state contribution and waiting period rules, and that such plan documents are distributed within ERISA timeframes.
- Avoid creating classifications that obscure or discriminate against certain employees.
- Seek ERISA counsel before implementing variations to minimize compliance risk.