Nondiscrimination testing

In order to qualify for tax-favored status, a benefit plan must not discriminate in favor of highly compensated employees (HCEs) and key employees with respect to eligibility, contributions, and benefits. In order to document compliance annual tests must be performed and the results documented for each benefit plan. The results are subject to audit by the IRS. The Federal government has established regulations that specify requirements for each type of benefit plan governed by IRC Section 125, IRC Section 105, and IRC Section 129. Employers often outsource the execution of the nondiscrimination testing to Advisors including TPAs, Accounting and Law firms.

CXC helps Advisors with the set up and execution of the following tests:

Section 125 Cafeteria Plans

  1. 25% Key Employee Concentration Test
  2. Eligibility Test
  3. Contributions and Benefits Test
    • Safe Harbor for Health Plans Test
    • Availability Test
    • Utilization Test
  4. Safe Harbor Test

  

Section 105(h) Health FSA

  1. Eligibility Test
    • 70% Test: Alternative #1 of 3 Eligibility Test
    • 70%/80% Test: Alternative #2 of 3 Eligibility Test
    • Nondiscriminatory Classification Test
  2. Benefits Test

Section 129 Dependent Care FSA

  1. More-Than-5% Owners Concentration Test
  2. 55% Average Benefits Test
  3. Eligibility Test
  4. Contributions and Benefits Test
 
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