Health Care Reform: A Sea Change Regarding the Treatment of Discrimination

The Internal Revenue Code has for many years contained provisions intended to discourage discrimination in favor of highly paid employees in the design and operation of employee benefit plans. If a retirement plan failed to satisfy complex nondiscrimination rules in the Code, adverse tax consequences were visited upon the employer maintaining the plan, employees participating in the plan and the trust through which the plan was funded. If a self-insured health plan discriminated, all or a part of the otherwise tax-exempt medical benefits received by a “highly compensated individual” under the plan were taxable to the highly compensated individual.