Can a Company or Employer Give Employees Different Amounts with Defined Contribution Health Plans?

Yes! With a defined contribution health plan, an employer can give employees different contributions based on classes of employees.  Federal regulations state that “a plan or issuer may treat participants as two or more distinct groups of similarly situated individuals if the distinction between or among the groups of participants is based on a bona fide employment-based classification consistent with the employer's usual business practices.”

To comply with these regulations, employee classes within the defined contribution health plan must:

1. Be based on bona-fide business differences. These may include job categories, geographic location, part-time or full-time status, date of hire, etc.

2. Treat all “similarly situated” employees equally. By creating classes based on genuine job categories, all employees within a class will be “similarly situated”.

3. Not discriminate against unhealthy people. An employer cannot provide inferior benefits to specific individuals with adverse health conditions. 

4. Spell out the requirements for classes and benefits in the ERISA plan document.

If, upon audit, a defined contribution plan is found to not comply with these rules, then the employer must provide the same level of benefits to all employees, regardless of their class, from the time the plan was created to the date of the violation.

See 29 CFR §2590.702 for more information.