4111 / What characteristics indicate a plan is not a 10 or more employer plan?

The presence of any of the characteristics listed below generally indicates that the plan is not a 10 or more employer plan under IRC Section 419A(f)(6). It is important to note that a plan’s lack of all of the following characteristics does not create any inference that it is a 10 or more employer plan described in IRC Section 419A(f)(6).¹ The characteristics are as follows:

(1)   Allocation of plan assets. Assets of the plan or fund are allocated to a specific employer or employers through separate accounting of contributions and expenditures for individual employers, or otherwise.²

(2)   Differential pricing. The amount charged under the plan is not the same for all the participating employers, and those differences are not merely reflective of differences in current risk or rating factors that are commonly taken into account in manual rates used by insurers (such as current age, gender, geographic locale, number of covered dependents, and benefit terms) for the particular benefit or benefits being provided.³

(3)   No fixed welfare benefit package. The plan does not provide for fixed welfare benefits for a fixed coverage period for a fixed cost.⁴

(4)   Unreasonably high cost. The plan provides for fixed welfare benefits for a fixed coverage period for a fixed cost, but that cost is unreasonably high for the covered risk for the plan as a whole.⁵

(5)   Nonstandard benefit triggers. The plan provides for benefits (or other amounts payable) that can be paid, distributed, transferred or otherwise provided from a fund that is part of a plan by reason of any event other than the illness, personal injury, or death of an employee or family member, or the employee’s involuntary separation from employment. For example, a plan exhibits this characteristic if the plan provides for the payment of benefits to an employer’s employees on the occasion of the employer’s withdrawal from the plan. A plan will not be treated as having this characteristic merely because upon cessation of participation in the plan, an employee is provided with the right to convert coverage under a group life insurance contract to coverage under an individual life insurance contract without demonstrating evidence of insurability, but only if there is an additional economic value association with the conversion right.⁶

For examples of arrangements classified as experience-rating arrangements, see Treasury Regulation Section 1.419A(f)(6)-1(f).