Expert: Vanessa D. Powell, CPA - 10/20/2009

Question
It is my impression that federal law requires that employee benefits programs for any classification (exempt-salaried, non-exempt-salaried or hourly) be the same or at least equal in value for all employees at a specific employer/location.  If this is in fact true, where can I find the specific rule or law?

Thank you!

Answer
While it's a little more complicated than that, your basic premise is correct.  ERISA (Employee Retirement Income Security Act of 1974) does dictate that there can be no discrimination between employees, regardless of pay.  However, they can make it voluntary or based on compensation, at which point it's completely legal if someone gets more than someone else.  For example, profit sharing is usually based on annual compensation, so someone who gets paid 200,000 per year is going to get a lot more than someone who gets paid 20,000 per year.  And that is allowed.  What isn't allowed is for there to be some kind of sliding scale based on position or pay level.  For instance, it wouldn't be legal for salaried workers to get a 5% match in a 401(k) while hourly workers get 2.5% (or even vise versa- reverse discrimination is also not allowed.)  Similarly, if highly-compensated employees are allowed to contribute to the Plan, then everyone else should be allowed to contribute as well- it's not just about the employer portion of a benefit plan.

Essentially, as long as everyone has the exact same opportunity, it's acceptable.

However, if the plan isn't qualified (meaning, it doesn't get special tax treatment), then, essentially, these discrimination rules don't apply- the company can (obviously, within reason) contribute and allow contributions in any way they choose.

Hope that makes sense. :0)