threading the needle for health insurance & 401K

[junkman]

Some friends of mine work for a CA employer that has a 3-person group and will add a 401-k effective January 1. CA requires that more than 50% of enrollees reside in CA else the group terms. They meet the residence requirement because 2 out of the 3 live in CA.

There is another person currently receiving 1099 income that lives in another state and wants to be eligible for the 401k but has other medical coverage. The addition of this person to medical coverage would violate the 51% requirement.

How does this 1099 person switch to W-2 for the 401K and not trash the medical?

 

[junkman]

I think one solution is to change the plan to contributory, let the former 1099 turned employee waive coverage and specify the employer contribution to x % not to exceed $Y. That way the 401K contribution will be the same even if one person earns more than the others.

The employer can fund an HSA for this person in lieu of paying their premium. This is the only person with an HSA compatible plan so none of the other employees are eligible for an HSA.

 

[TN_agent]

Are you certain it is 50% of enrollees, or is it 50% of eligible?

 

[junkman]

Are you certain it is 50% of enrollees, or is it 50% of eligible?

Of course I'm sure. Actually, plan gets termed at 50%. They need 51% which they don't have when the contractor goes to W-2.

 

[TN_agent]

ok, well sounds like you don't need any advice, so good luck.