• About
    • Who We Are
    • How We Work
    • Leadership
    • Community
    • Careers
    • Locations
  • Solutions
    • Employee Benefits
    • Executive Risk Solutions
    • HR Services
    • M&A Advisory
    • Private Client Services
    • Property & Casualty
    • Retirement Services
    • Wholesale Benefits
    Menu
    • Employee Benefits
    • Executive Risk Solutions
    • HR Services
    • M&A Advisory
    • Private Client Services
    • Property & Casualty
    • Retirement Services
    • Wholesale Benefits
    Services
    • ABD Total Solution
    • Claims Management
    • Contract Review
    • Global
    • Occupational Health & Safety
      and Workers’ Compensation
    • Surety
    Menu
    • ABD Total Solution
    • Claims Management
    • Contract Review
    • Global
    • Occupational Health & Safety
      and Workers’ Compensation
    • Surety
  • Industries
    • Cannabis
    • Clean Technology
    • Construction
    • Entertainment
    • Financial Institutions and Fintech
    • Food and Beverage
    • Healthcare
    • Life Science
    • Maritime
    Menu
    • Cannabis
    • Clean Technology
    • Construction
    • Entertainment
    • Financial Institutions and Fintech
    • Food and Beverage
    • Healthcare
    • Life Science
    • Maritime
    • Nonprofit and Social Enterprise
    • Private Equity and Venture Capital
    • Public Sector
    • Real Estate
    • Real Estate Investment Trust (REIT)
    • Sharing Economy
    • Technology
    Menu
    • Nonprofit and Social Enterprise
    • Private Equity and Venture Capital
    • Public Sector
    • Real Estate
    • Real Estate Investment Trust (REIT)
    • Sharing Economy
    • Technology
  • ABD Insights
    • Events
    • Blog
    • Press
    • Resources
  • Contact
  • ABD Connect

Contact

Menu
  • About
    • Who We Are
    • How We Work
    • Leadership
    • Community
    • Careers
    • Locations
  • Solutions
    • Employee Benefits
    • Executive Risk Solutions
    • HR Services
    • M&A Advisory
    • Private Client Services
    • Property & Casualty
    • Retirement Services
    • Wholesale Benefits
  • Services
    • ABD Total Solution
    • Claims Management
    • Contract Review
    • Global
    • Occupational Health & Safety & Workers Compensation
    • Surety
  • Industries
    • Cannabis
    • Clean Technology
    • Construction
    • Entertainment
    • Financial Institutions and Fintech
    • Food and Beverage
    • Healthcare
    • Life Science
    • Maritime
    • Nonprofit and Social Enterprise
    • Private Equity and Venture Capital
    • Public Sector
    • Real Estate
    • Real Estate Investment Trust (REIT)
    • Sharing Economy
    • Technology
  • ABD Insights
    • Events
    • Blog
    • Press
    • Resources
  • Contact
  • ABD Connect
  • ABD Home
  • Blog

Cafeteria Plan Nondiscrimination Tests

  • February 15, 2020
  • Brian Gilmore
  • Compliance
Share
Share on linkedin
Share on facebook
Share on twitter
Share on email

Question: What are the cafeteria plan nondiscrimination tests, and what is the definition of highly compensated for each?

Short Answer:  Each component of the cafeteria plan has a different set of nondiscrimination tests and the definition of highly compensated.

Cafeteria Plan Nondiscrimination Testing (§125)

a) Nondiscrimination Test Components

  1. Eligibility Test
  2. Contributions and Benefits Test
  3. Key Employee Concentration Test

b) Cafeteria Plan NDT: Highly Compensated Participant (HCP)

Individuals are considered highly compensated as a HCP for purposes of the Eligibility Test and the Contributions and Benefits Test if they are:

  • An officer;
  • A more-than-5% owner of the employer in the current or preceding year; or
  • An employee who earned in excess of $125,000 (2020 testing) or $130,000 (2021 testing) in the prior plan year, or current plan year in the case of the first year of employment (Note: Top 20% alternative may be available via top-paid group election).

c) Cafeteria Plan NDT: Key Employees

Individuals are considered highly compensated as a Key Employee for purposes of the Key Employee Concentration Test if they are:

  • An officer with annual compensation for the current plan year in excess of $185,000 (2020 testing);
  • A more-than-5% owner; or
  • A more-than-1% owner making at least $150k (all testing years).

Health FSA Nondiscrimination Testing (§105(h))

a) Nondiscrimination Test Components

  1. Eligibility Test
  2. Benefits Test

b) Health FSA NDT: Highly Compensated Individual (HCI)

Individuals are considered highly compensated as a HCI for purposes of §105(h) if they are:

  • One of the top five highest-paid officers;
  • A shareholder who owns more than 10% of the value of the employer’s stock; or
  • Among the highest-paid top 25% of all employees in the current plan year.

Dependent Care FSA Nondiscrimination Testing (§129)

a) Nondiscrimination Test Components

  1. Eligibility Test
  2. Contributions and Benefits Test
  3. More-Than-5% Owner Concentration Test
  4. 55% Average Benefits Test (Most Common NDT Failure)

b) Dependent Care FSA NDT: Highly Compensated Employee (HCE)

Individuals are considered highly compensated as an HCE for purposes of the dependent care FSA NDT if they are:

  • A more-than-5% owner of the employer in the current or preceding plan year; or
  • An employee who earned in excess of $125,000 (2020 testing) or $130,000 (2021 testing) in the prior plan year (Note: Top 20% alternative may be available via top-paid group election).

For more details on various nondiscrimination testing issues:

  • Failing the Dependent Care FSA 55% Average Benefits Test
  • The Top-Paid Group Election and Other Alternatives to Avoid NDT Failures
  • Nondiscrimination Rules for Different Health Plan Contribution Structures
  • 105(h) Nondiscrimination Rules for Specialty HRAs
  • HSA Nondiscrimination Rules (Comparability vs. Cafeteria)
  • Group-Term Life Insurance §79 Nondiscrimination Rules

For more details of everything related to cafeteria plans, see our ABD Office Hours Webinar: Section 125 Cafeteria Plans.

Regulations

ABD Office Hours Webinar: Section 125 Cafeteria Plans

Nondiscrimination Rules: Three Main Sets of Tests

 

Nondiscrimination Rules: 55% Average Benefits Test pt. 1

Nondiscrimination Rules: 55% Average Benefits Test pt. 2

Nondiscrimination Rules: Failing the 55% Average Benefits Test

 

 

 

Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship.  Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).

Brian Gilmore

Brian Gilmore

Brian Gilmore is the Lead Benefits Counsel at ABD. He assists clients on a wide variety of employee benefits compliance issues. The primary areas of his practice include ERISA, ACA, COBRA, HIPAA, Section 125 Cafeteria Plans, and 401(k) plans. Brian also presents regularly at trade events and in webinars on current hot topics in employee benefits law.
Stay connected.
Anytime, anywhere.
LEARN MORE
ABD Global Reach
Worldwide Broker Network

500 offices • 100 countries • 6 continents

About
  • Who We Are
  • How We Work
  • Leadership
  • Community
  • Careers
  • Locations
Menu
  • Who We Are
  • How We Work
  • Leadership
  • Community
  • Careers
  • Locations
Solutions
  • Employee Benefits
  • Executive Risk Solutions
  • HR Services
  • M&A Advisory
  • Private Client Services
  • Property & Casualty
  • Retirement Services
  • Wholesale Benefits
Menu
  • Employee Benefits
  • Executive Risk Solutions
  • HR Services
  • M&A Advisory
  • Private Client Services
  • Property & Casualty
  • Retirement Services
  • Wholesale Benefits
Industries
  • Cannabis
  • Clean Technology
  • Construction
  • Entertainment
  • Financial Institutions and Fintech
  • Food and Beverage
  • Healthcare
  • Life Science
  • Maritime
Menu
  • Cannabis
  • Clean Technology
  • Construction
  • Entertainment
  • Financial Institutions and Fintech
  • Food and Beverage
  • Healthcare
  • Life Science
  • Maritime
 
  • Nonprofit and Social Enterprise
  • Private Equity and Venture Capital
  • Public Sector
  • Real Estate
  • Real Estate Investment Trust (REIT)
  • Sharing Economy
  • Technology
Menu
  • Nonprofit and Social Enterprise
  • Private Equity and Venture Capital
  • Public Sector
  • Real Estate
  • Real Estate Investment Trust (REIT)
  • Sharing Economy
  • Technology
ABD Insights
  • Events
  • Blog
  • Press
  • Resources
Menu
  • Events
  • Blog
  • Press
  • Resources
Contact
  • Contact
  • hello@theabdteam.com
Menu
  • Contact
  • hello@theabdteam.com
ABD Connect
Facebook-f
Twitter
Linkedin-in

ABD Corporate Headquarters: 777 Mariners Island Blvd., Suite 250 |  San Mateo , CA.  94404 | 650-488-8565

©2021 ABD Insurance and Financial Services. All rights reserved. Privacy Policy | License #OH55918