Compliance News Week Ending November 8, 2024

Benefit Nondiscrimination Rules

Employers are generally permitted to differentiate benefits, eligibility, waiting periods and contributions between classes of employees so long as the employer does not discriminate against a protected class (e.g., age, gender, health status).

However, benefit nondiscrimination rules restrict the ability to favor highly compensated or key employees on a tax-favored basis.

The definitions for "highly compensated individual/participant" and "key employee" differ slightly depending upon which benefit nondiscrimination rules apply but take into account compensation thresholds that are adjusted annually.

In Notice 2024-80, the IRS released the updated thresholds for 2025. Those who earn $160,000 (previous $155,000) or more in 2025 will be considered highly compensated in 2026 for purposes of §125 and §129 nondiscrimination rules; and officers with annual compensation of $230,000 (previously $220,000) or more are key employees for purposes of §125 and §79 nondiscrimination rules.

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