St. Petersburg has undergone a remarkable transformation over the past decade, evolving from a retiree enclave into one of Florida's most vibrant mid-size cities. The downtown arts district, booming restaurant scene, and influx of creative professionals and remote workers have reshaped the local real estate market — driving demand for condos, historic bungalows in neighborhoods like Kenwood and Old Northeast, and new construction in the rapidly developing Edge District. Pinellas County real estate brokerages have benefited from this market energy, with many expanding their W-2 operations staff to keep pace with transaction volume.
That expansion triggers federal health plan compliance obligations that some growing brokerages encounter for the first time. When a St. Petersburg brokerage establishes a self-insured health arrangement for its principals and staff, IRC Section 105(h) nondiscrimination rules immediately apply. This guide explains what those rules require and how to build a plan that passes both the eligibility and benefits tests every year.
A St. Pete brokerage might employ 30–60 licensed agents on 1099 contracts, with a W-2 team of 5–12 staff running operations: the principal broker or managing director, marketing coordinators, client experience managers, transaction specialists, and administrative support. The 1099 agents are excluded from 105(h) testing entirely. The W-2 staff form the testing population.
St. Petersburg's creative talent market means some brokerages have invested in W-2 marketing and design staff with specialized skills — people who command above-average salaries for the administrative category. This can increase the number of employees who fall into the "top 25% by compensation" HCI bucket, complicating the nondiscrimination testing math.
Eligibility Test. For a self-insured plan to pass, it must benefit at least 70% of all non-HCI W-2 employees. Alternatively, if at least 70% of all W-2 employees are eligible, the plan can pass by benefiting 80% of eligible employees. For a brokerage with 10 W-2 employees — 2 HCIs and 8 non-HCIs — the plan must cover at least 6 of the 8 non-HCIs (75%) to satisfy the 70% safe harbor. Covering all 8 is the simplest approach.
Benefits Test. Every benefit available to an HCI must be available to all eligible employees on the same terms. If the managing broker can access a plan option with a $500 deductible, that same plan option must be available to the marketing coordinator and transaction specialist. Position-based plan tiering is the most common benefits test failure mode.
Not every W-2 employee must be included in the testing pool. The IRS permits specific exclusions from testing when consistently applied:
| Exclusion Category | Condition |
|---|---|
| Short-service employees | Fewer than 3 years of service; must be consistently applied |
| Part-time employees | Fewer than 35 hours per week (or 17.5 hours if plan uses lower threshold) |
| Seasonal employees | Work fewer than 7 months per year |
| Employees under age 25 | May be excluded if consistently applied |
| Nonresident aliens | No US-source income; must be excluded consistently |
These exclusions reduce the testing denominator, making it easier to pass the 70% threshold. However, exclusions must be applied uniformly — you cannot selectively exclude a non-HCI employee you want to leave off the plan while including a similarly situated non-HCI who happens to have different demographic characteristics.
Step 1 — Classify each W-2 employee. List all W-2 employees by compensation, title, and hours. Apply any permitted exclusions consistently. Separate the remaining employees into HCIs and non-HCIs using the three-prong 105(h) definition.
Step 2 — Test eligibility. Confirm that at least 70% of remaining non-HCIs are eligible for the plan (or are covered if eligible). If the brokerage is below the threshold, it must extend eligibility to additional non-HCI employees before distributing benefits for the plan year.
Step 3 — Test benefits. Review the plan document and the actual benefits being administered. Confirm that no plan option, reimbursement limit, or cost-sharing structure is available exclusively to HCIs. Every available benefit must be available to all eligible employees regardless of compensation level.
Step 4 — Document and retain. Keep the census data, testing calculations, and results for at least six years. Also retain evidence of any corrective action taken if the plan initially failed a test.
Not updating the plan document when adding new benefits. If the brokerage adds dental or vision coverage to an existing self-insured arrangement without amending the plan document, the new benefits may not be legally part of the plan — creating both a documentation gap and a potential benefits test issue if those benefits are selectively administered.
Assuming fully insured plans are fully exempt. While fully insured plans are not subject to 105(h) testing, they may still face ACA Section 1557 scrutiny if the plan receives federal financial assistance. St. Pete brokerages should periodically review their plan documents for discriminatory exclusions regardless of plan type.
Talk to a licensed advisor about health plan nondiscrimination compliance for your St. Petersburg real estate brokerage.