Welfare Benefit Nondiscrimination Testing

Why do we need Nondiscrimination Testing?

If your company offers any form of a pre-tax welfare benefits plan such as group Medical, Dental, Vision or Life insurance (commonly referred to as a Premium Only Plan or POP), or a Flexible Spending Account (commonly referred to as an FSA or Cafeteria Plan), there is an IRS requirement to test your benefit plan for Nondiscrimination on an annual basis. These tests are designed to make sure that the company is treating all of its employees relatively in regards to their benefits package and not giving employees who are higher paid or in management positions better benefits than their lower-paid or non-management employees. While it is easy to overlook, nondiscrimination testing is an essential piece of a company's compliance requirements. If an employer does not perform this annual testing or does not adequately follow the steps necessary for this testing, it could lead to some hefty consequences, including losing their ability to offer pre-tax welfare benefits to their employees. HR Service, Inc. helps relieve that stress by performing this annual test in a timely and affordable manner. No matter what type of benefits your company offers, HR Service, Inc. can ensure that your company is following the IRS testing requirements

What Are the Specific Tests to Conduct?

Depending on what type of benefits your company offers, there are up to nine different tests that may need to be administered. Some tests are related to eligibility and availability of benefits, and some are based on how many employees have elected these benefits. Below is a list of tests that are required for each of the most common benefit packages companies offer:

Section125Premiumonly Plan(POP)IncludingHSAs

Eligibility Test Contributions and Benefits Test Key Employee Concentration Test

HealthFSAsandDependent Care FSA(DCAP)

All tests under POP listed above Benefits Test (FSA only) Contribution and Benefits Test (DCAP only) More-Than-5%OwnersTest (DCAPonly) 55% Average Benefits Test (DCAPonly)

Section 105(H) Self Insured Medical Plans and HRAs Eligibility Tests

70% Test 70/80% Test Benefits Test