What are the non-discrimination requirements for life insurance?
Non-discrimination requirements ensure that employers are offering benefits fairly to all employees.
Defining Key Employees
The IRS Guidelines define Key Employees as any of the following:
- Officers of the company with gross compensation in excess of $180,000 or
- Employees of the company in the current year who:
Employers can selectively offer life insurance only to Key Employees, but they cannot deduct the employee premiums from their federal taxes, unless they meet the non-discrimination requirements.
To comply with non-discrimination requirements, the plan must meet the following standards:
- The plan must benefit at least 70 percent of the company's employees.
- At least 85 percent of all employees who participate in the plan must not be highly-compensated or Key Employees.
- The plan must benefit employees who qualify under a classification that is set up by the employer and found by the IRS not to discriminate in favor of Key Employees.
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