The IRS requires that all Section 125 Cafeteria Plans comply with non-discrimination regulations to ensure that each plan does not favor highly compensated and/or key employees of the organization. Each plan must pass this testing at least once in the plan year in order to be in compliance.
For 2019 plans, the Key Employee salary criteria increased to $180,000, while the salary threshold for highly compensated criteria rose to $125,000. A highly compensated employee would then generally be any employee making over $125,000 or who owns more than 5% of the company. A key employee is generally an officer (CEO, COO, President) who makes over $180,000, employees and family members who own more than 5% of the company, and employees who make $150,000 per year and own over 1% of the company.
There are three tests Flores performs for our FSA clients that must be satisfied in order to comply:
- Cafeteria Plan Eligibility Test
The Plan cannot have eligibility requirements that favor highly compensated employees. - Cafeteria Plan Concentration Test
Key employees cannot receive more than 25% of the total pre-tax benefits provided to all employees under the Plan. - Dependent Care Average Benefits Test
This test considers only Dependent Care FSA contributions. Highly compensated employees cannot receive a greater share of the total pre-tax benefits of the Plan than non-highly compensated employees.
Annual Non-Discrimination testing is performed as a part of our standard FSA administration services. Please contact your dedicated account manager with any questions you may have about this service.
About Flores
Flores is a leading national administrator of tax-advantaged reimbursement plans including Flexible Spending Accounts (FSAs), Health Savings Accounts (HSAs), Health Reimbursement Accounts (HRAs) and Commuter Benefit Accounts (CBAs). In addition to these account-based benefit options, they also handle COBRA and other direct bill services to meet the compliance needs of the employers they serve. In 2018, Flores introduced life.balanced. Reimbursement Accounts (LBA), an affordable post-tax lifestyle reimbursement account for the culture-driven employer. Based in Charlotte, NC, Flores has emerged as the leader in the CDHP market through a service model founded upon innovative technology, dedicated professionals, and an uncompromising commitment to superior service. For more information, visit the Flores website and follow them on LinkedIn.
- Cindy Bistany
- Director of Business Development and Strategic Alliances
- (828) 693-3595
- cindy@flores247.com
- Clay Peddycord, GBA, CFC
- Director of Business Development and Strategic Alliances
- (800) 532-3327
- clay.peddycord@flores247.com
- Aaron Hunt, MBA, CDHC, HSAe, Certified COBRA Administrator
- Director of Business Development and Strategic Alliances
- (800) 532-3327
- aaron.hunt@flores247.com