Cape Coral holds a remarkable distinction: with over 400 miles of navigable canals, it has more waterways than any other city in the world. That unique geography has made Lee County's largest city a perennial draw for waterfront property seekers — buyers from the Midwest and Northeast who dream of boat-dock living at a fraction of what comparable waterfront costs in coastal markets farther north. Cape Coral's real estate market has been among Florida's most active, with brokerages specializing in both canal-front and inland inventory serving a diverse mix of retirees, investors, and families.
As Cape Coral brokerages have grown their W-2 operations teams in response to transaction demand, federal health plan nondiscrimination obligations under IRC Section 105(h) have become a compliance area that many have never formally addressed. This guide covers the two tests a self-insured plan must pass, how the testing population is determined for a brokerage workforce, and the steps needed to build and maintain a compliant plan.
Cape Coral brokerages frequently are co-owned by two or three partners who also act as managing brokers. Under IRC 105(h), each partner owning 10% or more of the company is an HCI. For a brokerage with three equal partners, all three are HCIs automatically. Add the top-25%-by-compensation test and you may have additional HCIs among salaried staff. The non-HCI group then consists of coordinators, administrative assistants, and marketing personnel — who may number just 2 to 4 people.
This structure requires careful attention to the eligibility test: if there are 3 HCIs and only 3 non-HCIs, the plan must cover all 3 non-HCIs (100%) to pass the 70% safe harbor. There is no margin for excluding even one non-HCI employee.
Eligibility Test. The plan must benefit at least 70% of all non-HCI W-2 employees. For a brokerage with 3 HCIs and 4 non-HCIs, the plan must cover at least 3 of the 4 non-HCIs (75%). Covering all 4 is the cleanest approach and eliminates this test as a concern.
Benefits Test. Every benefit available to any HCI must be available to all eligible employees. The three co-owner managing brokers and the transaction coordinator must have access to identical plan options — same reimbursement limits, same coverage tiers, same cost-sharing rules. No position-based differentiation is permitted in a self-insured plan.
Some Cape Coral brokerages use a hybrid approach: a fully insured small-group plan (not subject to 105(h)) for base health coverage, supplemented by an employer-funded HRA to cover deductibles and copays. This combination can be cost-effective for small teams.
The key compliance point: the HRA is a self-insured arrangement and is subject to 105(h) independently. If the three co-owner managing brokers have access to an HRA that reimburses deductibles but the coordinators do not, the HRA fails the eligibility test even if the underlying carrier plan is offered to everyone. Each benefit component — the carrier plan and the HRA — must independently satisfy its applicable compliance requirements.
Step 1 — Audit current arrangements. What health benefits does your brokerage currently offer? Who is covered? Are there HRAs, QSEHRAs, or self-funded arrangements in place? Identify every health benefit arrangement and determine whether it is fully insured or self-insured.
Step 2 — Build the W-2 census. List all W-2 employees, their ownership percentages, compensation, and titles. Exclude 1099 agents. Apply the 105(h) HCI definition: top 5 officers, 10%+ shareholders, and top 25% by compensation.
Step 3 — Run the eligibility and benefits tests. For each self-insured arrangement, confirm 70%+ non-HCI coverage and equal benefit terms.
Step 4 — Amend the plan if needed. Before the next plan year, update the plan document to include all eligible W-2 employees. Notify newly included employees of their coverage and conduct enrollment.
Step 5 — Document and retain annually. Keep testing documentation for six years.
Not Updating for Post-Storm Staff Changes. Brokerages that restructured after Hurricane Ian may have different W-2 staff compositions than their pre-storm plans anticipated. Plans that were compliant in 2021 may not be compliant today if staffing changed significantly during recovery.
Assuming Annual HRA Renewals Automatically Include New Employees. HRAs typically renew based on the plan document's eligibility provisions. If the document defines eligible employees narrowly (e.g., "employees as of the plan effective date"), new hires may not be automatically included. Review the eligibility provisions annually.
Talk to a licensed advisor about health plan nondiscrimination compliance for your Cape Coral real estate brokerage.