Internal Revenue Code (IRC)
The Internal Revenue Code (IRC) governs the taxation of employee benefits. The IRC does not require employers to provide workers with employee benefits. Instead, it provides special tax incentives to encourage employers to sponsor retirement plans (e.g., pension plans) and welfare plans (e.g., health care, life, and disability insurance plans) for their employees.
In exchange for special tax benefits, both retirement and welfare plans are generally required to meet a “non-discrimination” standard. Under this standard, employers must show that their plans do not discriminate in favor of highly-paid workers with respect to eligibility to participate in the plan or in the benefits provided under the plan. As a practical matter, an employer’s plans must cover and provide equivalent benefits to a sufficient number of low-paid and rank-and-file workers to meet the non-discrimination standard. In some circumstances, these workers may include part-time and seasonal employees. The specific tests for non-discrimination vary, depending on the type of benefit provided.
The IRC also permits employers to establish additional requirements (beyond those specified by ERISA) for plan participation based on job classifications. Employers may not, however, establish job classification standards that are a subterfuge for getting around the requirement that part-time or other workers who otherwise meet ERISA’s minimum eligibility standards may not be excluded from such plans. In addition, plans that use eligibility requirements based on job classifications must still demonstrate that the classifications do not discriminate in favor of highly-paid workers.
With respect to workplace flexibility, the IRC gives employers an incentive (through tax breaks) to offer benefits to all employees, including those working part-time, leaving and reentering the workplace periodically, or otherwise utilizing flexible workplace options. In addition, the IRS has recently issued proposed regulations to make it easier for people approaching retirement age to work part time (i.e., phased retirement) and keep their pension benefits.
- Legal and Research Summary Sheet: Phased Retirement
- Chart Summarizing Comments on the Internal Revenue Service’s Proposed Phased Retirement Regulations
Documents prepared by Workplace Flexibility 2010: