FSA Nondiscrimination Testing Questions, Answered.

The EBC nondiscrimination testing process involves 4 steps and we have resources to help you throughout the process. The 4 steps include:

1. Downloading the Worksheet
2. Completing the Worksheet
3. Submitting the Worksheet
4. Receiving your results

To access and download the worksheet, log in to your company’s employer online account at www.ebcflex.com. (If you forgot your password, simply follow the prompts on the screen to reset it.) Access the menu, look for the Resources section, and click Forms and Materials. Click the product name, and then click Nondiscrimination Testing Worksheet to download it.

To learn how to complete the worksheet, visit our Nondiscrimination Instructions for detailed instructional videos or feel free to look at our FAQs below about completing the Subjective Questions tab, FSA Data tab, or Sect 125 tab.

Additionally, the worksheet itself contains helpful tips throughout. For example, if you hover over the headings on the FSA Data tab, you’ll see helpful tips.

We strongly encourage you to submit the Worksheet within 30 days of receiving a request or reminder from EBC for the Worksheet. The benefit of submitting the Worksheet in that timeframe is that your company will have time to address any potentially failing test by adjusting plan elections prior to the end of the plan year.

If your company waits until the end of the plan year to submit the Worksheet and fails a test, correction typically involves Form W-2 adjustments which many employers wish to avoid.

Once you’ve completed the worksheet, securely submit it through your employer online account.

1. Save your completed worksheet on your computer in an easily accessible location.
2. Log in to your employer account at www.ebcflex.com. Forget your password? Simply follow the prompts on the screen to reset it.
3. Once you’re logged in, click the main menu, locate the Resources section, and click Upload Files.
4. Choose Nondiscrimination from the Choose File Type drop-down menu.
5. Choose the appropriate product name and plan year, if applicable, from the Product drop-down menu.
6. If applicable, please complete the plan start date and the plan end date for the plan we will be testing.
7. Choose whether this is an End of Year or Preliminary Test from the Test Type drop-down menu. Most employers will choose “End of Year.”
8. Click Choose File and navigate to your saved worksheet on your computer.
9. Click Upload file.
10. Once your file was successfully uploaded, you will receive a confirmation email.
11. If you have questions, email your Client Representative with questions at the email address listed in your employer online account.

You will receive an email notifying you if your tests have passed or failed. The email will provide you with a link to your employer online account to download your test results document and a link to the About Your Test Results webpage, where you can learn more about each test, what a passing or failing result means, and how to correct a failing result.

Since cafeteria plans and FSAs receive tax-advantaged status, benefits provided under these plans must not excessively benefit highly compensated employees or other key individuals. Nondiscrimination testing uses plan information along with mathematical tests to determine whether these plans benefit a sufficient number of “rank and file” employees – i.e., those employees that are not considered highly compensated or key individuals.

EBC provides nondiscrimination testing to all BESTflex clients since BESTflex plans are subject to the IRS nondiscrimination rules.

IRS regulations* say that “nondiscrimination testing must be performed as of the last day of the plan year.” Therefore, EBC requests the full plan year’s data from employers to perform nondiscrimination testing.

*Technically, these regulations, issued in 2007, are still in “proposed” form. However, the IRS has said taxpayers may rely upon them.

Simply put, the timing of EBC’s nondiscrimination testing provides employers with more time to decide how to address any potential nondiscrimination testing failures. If an employer learns prior to the end of the plan year that their plan most likely will fail nondiscrimination testing, the employer can consult with its advisors regarding the best way to correct the error. If, on the other hand, the employer learns after the end of the plan year that their plan has failed nondiscrimination testing, not only are the employer’s correction choices limited, but the employer may have to rush to make the correction in a timely manner. The timing of EBC’s nondiscrimination testing remedies these potential issues.

In most cases, nine nondiscrimination tests are performed. That is a lot! Each test arises from a different section of the Internal Revenue Code (“Code”). The tests (and the applicable Code sections) are listed below. If you would like more in-depth information about any of these tests, please click over to our Nondiscrimination Results page.

Cafeteria Plan Testing (Code Section 125):
1. Eligibility Test
2. Contributions and Benefits Test
3. Key Employee Concentration Test

Health Care FSA Testing (Code Section 105):
1. Eligibility Test
2. Benefits Test

Dependent Care FSA Testing (Code Section 129):
1. Eligibility Test
2. Contributions and Benefits Test
3. 55% Average Benefits Test
4. 25% Concentration Test

Please note that EBC does not perform other types of nondiscrimination testing, such as nondiscrimination testing for self-funded major medical plans under Code Section 105, life insurance plans under Code Section 79, qualified adoption assistance plans under Code Section 137, or qualified educational assistance programs under Code Section 127.

Preliminary nondiscrimination testing uses projected elections (based on open enrollment) to forecast the nondiscrimination testing results for the next plan year. Thus, preliminary nondiscrimination testing is typically performed either prior to or during the first half of the plan year. Some employers choose to do preliminary nondiscrimination testing in addition to year-end testing. This allows them to adjust elections or take other steps early in the plan year to avoid nondiscrimination testing failures at the end of the year.

EBC performs preliminary nondiscrimination testing for a fee. Contact your Client Representative at (800) 346-2126 for more information about our preliminary nondiscrimination testing services.

Unfortunately the IRS hasn’t issued clear guidelines for nondiscrimination testing for a year in which an acquisition occurs. Here are some things you may want to keep in mind if your company acquired another company and the new company is part of your company’s controlled group:

• The employees of the new company should be included on your company’s worksheet.
• When you are entering FSA elections, HSA contributions, and premiums, you generally should enter only those elections, contributions, and premiums made through your company’s cafeteria plan, if any. However, if your company merged the seller’s cafeteria plan into your company’s cafeteria plan, then you may also enter the elections, contributions, and premiums made through the seller’s cafeteria plan and through your company’s cafeteria plan for the plan year being tested.
• Enter the compensation the new employees earned from your company. Whether you should include the compensation the new employees earned from the seller may depend on whether they were acquired in a stock or asset acquisition. If employees were acquired in a stock acquisition, their pre-acquisition compensation from the seller may be included in addition to the compensation from your company. If employees were acquired in an asset acquisition, the cautious approach is not to include their pre-acquisition compensation.

You can visit our About Your Test Results page to understand any implications for the test your company failed, and some ways to remedy it before the end of your plan year.

You can always contact your Client Representative with any questions. If you are in need of additional support, you can email compliance services at complianceservices@ebcflex.com, or reach us by phone at (800) 346-2126 x465.

We have made it easy for you to check the status of your company’s nondiscrimination test. To view the current status, log in to your company’s employer online account at www.ebcflex.com. (If you forgot your password, simply follow the prompts on the screen to reset it.) Access the menu, look for the Resources section, and click Nondiscrimination Test Results. You can view the previous year, current year, and next plan year if you choose to do preliminary testing. Click show test details to see any submissions and the current status.

Yes. The 20% top paid group election can help some employers reduce the number of their highly compensated employees which can help them pass nondiscrimination testing if the employer is having difficulty passing its nondiscrimination testing. However, to be cautious an employer should only direct EBC to use the 20% top paid group election if it also uses the 20% top paid group election for its retirement plan nondiscrimination testing. If your company would like EBC to apply the 20% top paid group election, please email complianceservices@ebcflex.com with the subject line “Please apply the 20% top paid group election.”

Possibly. If your company fails the Section 125 Contributions & Benefits test, it can disregard that failing test if:

• the employer contributions* under the cafeteria plan on behalf of each participant is at least 75% of the cost of major medical coverage for the participant having the highest cost major medical coverage
  OR
• the employer contributions* under the cafeteria plan on behalf of each participant is at least 100% of the cost of major medical coverage for the majority of highly compensated participants.

This safe harbor does not require everyone to take major medical coverage; it just requires that contributions to participants who do elect coverage meet one of the thresholds described above.

An employer does not qualify for this safe harbor if:

• it does not offer major medical coverage to employees
  OR
• the employer contributes a higher percentage for its highly compensated participants’ major medical coverage than it does for its non-highly compensated participants – for instance, contributing 100% towards highly compensated participants’ major medical coverage but only 75% towards non-highly compensated participants’ major medical coverage.

*IRS guidance is not clear on whether an employer can include salary reductions (i.e., pre-tax employee contributions) in addition to employer contributions for purposes of reaching the 75% or 100% thresholds. The conservative approach is to only include employer contributions. The more aggressive approach is to include both employer and employee contributions – employers choosing the more aggressive approach will usually be able to take advantage of this safe harbor. EBC cannot provide counsel as to whether your company should take the conservative or aggressive approach.

Technically speaking, no. However, failure to do so could result in loss of the tax-advantaged status of the plan if the IRS were to audit your company’s plan and find that it was discriminatory during the year(s) under audit. Therefore, the cautious approach is to conduct testing at least once per year towards the end of the plan year.

Some employers skip nondiscrimination testing some years if their plan recently passed nondiscrimination tests with plenty of “cushion” with respect to utilization. Such employers may conduct subsequent testing if the employer experiences material workforce changes or has other significant business changes that could affect enrollment and elections. Other employers are more risk averse and conduct testing each year to be on the safe side.

It is your company’s choice whether to conduct nondiscrimination testing each plan year, and EBC would not be liable if your company chooses not to conduct nondiscrimination for a given plan year. If your company chooses not to conduct nondiscrimination testing each year, you can simply disregard the communications we send to you regarding annual nondiscrimination testing.

There are many possible answers to this question. We always encourage our clients to check their data for errors if they failed because data errors are a common cause of failing test results. We also can provide information to you regarding whether or not a “safe harbor” might exist for a particular test that would allow your company to disregard a failing result on that test.

If a failing test can’t be resolved by correcting data errors or qualifying for a safe harbor, it could be that your company’s cafeteria plan or FSA failed a “utilization test”, which considers whether highly compensated employees actually used their benefits more than non-highly compensated employees. So, even if a company offers the same benefit package to everyone, if highly compensated employees use their benefits more than non-highly compensated employees, it is possible to fail a nondiscrimination test for that reason.

In order to provide your company with accurate nondiscrimination testing results, we must collect various pieces of information about your employees. In order to provide your company with test results quickly, we require that you provide us this information in a spreadsheet we make available to you so that we can quickly analyze the data using our testing tools. If your company is not able to provide the requested data in the required format, it may not be possible for us to conduct nondiscrimination testing for your plan.

Nondiscrimination testing results are not required to be provided to the IRS unless the IRS has requested them in the context of an audit or examination. If you do not conduct nondiscrimination testing for a plan year and later the IRS requests nondiscrimination testing results for that plan year, you may be able to conduct testing later when the IRS requests the tests as long as you have access to all the necessary plan data.

We recommend that you keep your nondiscrimination testing results with your plan records for at least 7 years to be on the safe side, but you may wish to consult with your tax advisor regarding how long you should retain nondiscrimination testing results.

Enter the plan year EBC is testing. For non-calendar year plans, this is the year the plan year started, not the year that it ends. If you are a BESTflex Plan client, you can find the plan year in your company’s My Company Plan document in the employer portal.

Example: For plan year 1/1/2022-12/31/2022, enter 2022. For plan year 6/1/2022-5/31/2023, enter 2022.

Yes, as long as the plan provides that all employees are eligible with no exclusions.

An eligibility classification that lists individuals by name or states “eligibility for this benefit is based on individual employment contracts” typically would not meet the “Reasonable Classification” test.

You would answer “no.” If your company sponsors a BESTflex plan and uses EBC’s standard plan document, the standard plan document contains no waiting period.

Most employers will answer “no” to the question: “Is any employee delayed entry into the cafeteria plan.” However, if an employer has a unique cafeteria plan design where there is a gap in time between the date that an employee becomes eligible and the date that they can actually start participating, the employer typically would answer “yes” to this question.

No. You do not need to determine who your company’s HCIs are if the FSA benefit provisions are the same for all eligible employees.

Yes, you should determine who your company’s HCIs are in order to accurately answer these questions.

However, before identifying your company’s HCIs, you may wish to identify which employees may be “excludable” from the Health FSA tests. It is not required to exclude these employees from testing, but in our experience, it can help many employers pass the Health FSA tests to exclude them.

Employees may be excluded from Health FSA testing if they are ineligible to participate AND they:

• have not completed three years of service prior to the beginning of the plan year; or
• have not attained age 25 prior to the beginning of the plan year; or
• are part-time or seasonal employees —an employer may treat as a part-time or seasonal employee any employee whose customary weekly employment is less than 25 hours or whose customary annual employment is less than seven months; or
• are included in a unit of employees covered by a collective bargaining agreement; or
• are nonresident aliens who receive no earned income from U.S. sources.

To determine your company’s HCIs, you can order your company’s employees from highest-paid to lowest-paid. Any employee among the top 25% when ranked by pay would be considered an HCI. If you exclude the employees identified above, you would not include them when ranking employees.

Next, you would identify your five highest-paid officers when ranked by pay and consider them HCIs, unless they are excludable. As a practical matter, your company’s officers probably are already in the top 25% of employees when ranked by pay, but that is not always the case.

Unfortunately, a “black and white” rule doesn’t exist for determining which individuals on the list are officers. According to IRS guidance, the term “officer” is determined by all the facts and circumstances, including the person’s authority and the nature and extent of their duties. Generally, an officer means an administrative executive who is in regular and continued service. Examples of “officers” would include: the President, Treasurer, CEO, CFO or Secretary of a company; the superintendent of a school district; a director of a non-profit organization, etc.

Finally, you would identify any shareholders who own more than 10% of the value of stock of the employer’s stock and consider them HCIs, unless they are excludable. When determining whether someone is an owner of a company, employers should consider the individual’s ownership of the voting power and the value of all classes of stock or ownership units of the employer. In identifying ownership, rules of attribution under Internal Revenue Code § 318 apply; for example, a spouse typically is deemed to own the interest held by the other spouse; an employee could be deemed to own the same ownership interest of his or her parents, children, and grandchildren. It is the employer’s responsibility to determine ownership.

The phrase “highly compensated individual” applies for Health FSA nondiscrimination testing and means any officer who is an employee and any employee who is in the top 25% of employees when ranked by pay. The phrase “highly compensated employee” applies for cafeteria plan and Dependent Care FSA nondiscrimination testing. For cafeteria plan nondiscrimination testing, a “highly compensated employee” is an officer, a more-than-5% owner of the company, any employee with prior year compensation in excess of the Internal Revenue Code § 414(q) threshold for the prior year, or a spouse or dependent of one of the aforementioned employees. For Dependent Care FSA nondiscrimination testing, a “highly compensated employee” is a more-than-5% owner of the company or any employee with prior year compensation in excess of the Internal Revenue Code § 414(q) threshold. For the Internal Revenue Code § 414(q) threshold, visit www.ebcflex.com/planlimits.

You should include any common law employee who was employed on any day during your plan year even if they are no longer employed.

If an owner is also a common law employee who receives a Form W-2 from the company, the owner should be included.

With respect to “self-employed” individuals*, the nondiscrimination testing regulations do not clarify whether or not self-employed individuals should be included in testing. The very conservative approach is to exclude such individuals from testing and not include them on this worksheet. However, in practice many employers choose to include self-employed individuals in their testing data. It is the employer’s decision whether or not to include such individuals in this worksheet.

*Although the nondiscrimination testing regulations don’t define the term “self-employed,” the following individuals are typically treated as self-employed: sole proprietors, partners in a partnership, and more-than-2% Subchapter S corporation shareholders.

For LLC owners, they typically are treated as self-employed depending on how the LLC is taxed. The owner of an LLC taxed as a single member LLC would be treated as a self-employed sole proprietor. The owner of an LLC taxed as a partnership would be treated as a self-employed partner. The owner of an LLC taxed as a Subchapter S corporation would be treated as self-employed if they have a more-than-2% interest. The owner of an LLC taxed as a C corporation would typically not be treated as self-employed, but would be included in nondiscrimination testing if they are employed by the entity and receiving W-2 wages. It is the employer’s responsibility to determine which individuals are considered self-employed for purposes of nondiscrimination testing.

If an officer is also a common law employee who receives a Form W-2 from the company, the officer should be included.

The nondiscrimination testing regulations do not clarify whether a non-employee officer should be included in testing. The very conservative approach is to exclude such individuals from testing and not include them on this worksheet. However, in practice many employers choose to include non-employee officers in their testing data. It is the employer’s decision whether or not to include such individuals in this worksheet.

Yes. The cautious approach is to include such employees on the worksheet.

Yes. The cautious approach is to include such employees on the worksheet.

Yes. Ineligible employees should be included on the worksheet.

It is important to know that if your company is part of a controlled group of companies, you should include employees of other companies within the same controlled group even if they are not eligible for your company’s benefit plans. A controlled group is a group of companies that have significant overlapping ownership according to IRS rules under Internal Revenue Code Sections 414(b), (c), and (m). Controlled groups include certain parent-subsidiary, brother-sister, affiliated and management groups. If you are not certain that your company is in a controlled group with other companies, you may wish to consult your company’s benefits director and tax advisor. Another option is to check your company’s retirement plan Form 5500 – if you see Code 3H on Line 8a, that means your company has told the IRS it is in a controlled group and thus it may be likely your company is in a controlled group.

Please note that EBC cannot make a determination regarding whether or not your company is in a controlled group.

Enter a unique employee identifier for each employee. Please avoid using sensitive data such as Social Security numbers or names.

No. You may use any unique and alphanumeric identifier in the Employee ID. You may create a new identifier for the purposes of nondiscrimination testing, or use an identifier that you already have in your systems. If you create a new identifier for the purposes of nondiscrimination testing, please be sure to keep a record of the identifiers you used for employees in the event you need to connect an employee to an identifier for purposes of correcting a failed nondiscrimination test.

Enter BOTH the employee Health FSA pre-tax election and any employer Health FSA contributions when completing the Health FSA Contributions field.

Enter what has been contributed from the start of the plan year and then add what is anticipated to be contributed through the end of the plan year based on their current Health FSA pre-tax election and the projected employer Health FSA contributions.

Enter BOTH the employee Dependent Care FSA pre-tax election and any employer Dependent Care contributions* when completing the Dependent Care Contributions field.

Enter what you anticipate will be reported in box 10 of the employee’s W-2. This would include what has been contributed from the start of the plan year and what is anticipated to be contributed through the end of the plan year based on their current Dependent Care election, and the projected employer contributions.

*With respect to employer contributions, include employer contribution to the employee’s Dependent Care FSA in addition to any other daycare subsidies that the employer provides (e.g., a free or discounted on-site daycare).

Enter the amount of employee-paid pre-tax premiums for health and welfare coverage. For most cafeteria plans, this amount will include premiums for medical, dental, and/or vision coverage.

However, if your company allows employees to pay other premiums on a pre-tax basis for coverages, such as AD&D, specified illness or indemnity, short term and/or long term disability, and/or life insurance, include the employee-paid pre-tax premiums for such coverages in Column D. Do NOT enter FSA or HSA contributions into Column D.

Enter what has been deducted in pre-tax premiums from employees’ wages from the start of the plan year and then add what is anticipated to be taken through the end of the plan year based on their current premium elections.

Enter ONLY the employee’s pre-tax share of the annual premium. Do not include the employer’s share of the premium or any premiums that are paid 100% by the employer. In addition, do not include after-tax (sometimes called “post-tax”) employee contributions, if any.

Insurance premiums paid pre-tax through a cafeteria plan must be included in cafeteria plan nondiscrimination testing. Therefore, they must be included in Column D so that your company can receive accurate nondiscrimination testing results.

Yes. HSA contributions made through a cafeteria plan (this includes BOTH employee and employer HSA contributions) must be included in cafeteria plan nondiscrimination testing or else nondiscrimination testing results may be inaccurate.

Enter BOTH the employee’s pre-tax HSA election and any employer HSA contributions when completing the HSA Contributions field. Enter what has been contributed from the start of the plan year and then add what is anticipated to be contributed through the end of the plan year based on their current HSA pre-tax election and the projected employer contributions.

If your company’s cafeteria plan is a calendar year plan, enter the gross compensation the employee earned in the prior calendar year.

Example: An employer’s cafeteria plan is January 1 through December 31. When testing for the 2022 plan year, enter the employee’s gross compensation paid from January 1, 2021 through December 31, 2021.

If your company’s cafeteria plan is a non-calendar year plan, your company has a choice. Your company can enter the gross compensation paid either (a) during the prior non-calendar plan year, or (b) during the calendar year ending within the current plan year.

Example: An employer’s cafeteria plan is June 1 through May 31. When testing for the 2022 plan year beginning June 1, 2022, enter the employee’s gross compensation paid for either (a) the period June 1, 2021 through May 31, 2022, or (b) the 2022 calendar year.

Enter the employee’s actual partial-year compensation.

If your company’s cafeteria plan is a calendar year plan, enter the projected gross compensation the employee will earn for the entire calendar year.

Example: An employer’s cafeteria plan is January 1 through December 31. When testing for the 2022 plan year, enter the gross compensation the employee is projected to earn from January 1, 2022 through December 31, 2022.

If your company’s cafeteria plan is a non-calendar year plan, your company has a choice. Your company can enter the gross compensation the employee is projected to earn either (a) during the non-calendar plan year being tested, or (b) during the calendar year ending after the current plan year.

Example: An employer’s cafeteria plan is June 1 through May 31. When testing for the 2022 plan year beginning June 1, 2022, enter the gross compensation the employee is projected to earn either (a) the period June 1, 2022 through May 31, 2023, or (b) the 2023 calendar year.

Enter the new employee’s actual compensation from their hire date to the end of the plan year. Since you may be completing this worksheet prior to the end of the plan year, you will need to estimate their compensation from the date you complete the worksheet through the end of the plan year.

You can project the current year’s gross compensation in a number of ways. EBC finds the easiest method is to determine what the employee is expected to have in gross compensation for the remaining payrolls in the plan year and then add that to the employee’s gross compensation to date. If the employee does not have a consistent income per paycheck, you can use the prior payrolls to determine an average and use that for your estimate.

Compensation for the short plan year should be reported as if the plan year was twelve months in duration and ended on the same date.

Example 1: An employer’s cafeteria plan has a short plan year of June 1, 2022 through December 31, 2022. When testing for the short plan year beginning June 1, 2022: enter the annual gross compensation for the 2021 calendar year in Prior Year Annual Compensation and enter the gross compensation the employee is projected to earn for the 2022 calendar year in Current Year Annual Compensation.

Example 2: An employer’s cafeteria plan has a short plan year of January 1, 2023 through May 31, 2023. When testing for the short plan year beginning January 1, 2023: enter the compensation in Prior Year Annual Compensation for either (a) the period June 1, 2021 through May 31, 2022, or (b) the 2022 calendar year; enter the gross compensation in Current Year Annual Compensation that the employee is projected to earn for either (a) the period June 1, 2022 through May 31, 2023, or (b) the 2023 calendar year.

Annual compensation is NOT just W-2 wages. Annual compensation means total gross wages including bonuses and incentives (or earnings from self-employment) before any reductions are deducted (including pre-tax parking, pre-tax transit, pre-tax premiums, FSAs or Section 401(k), SARSEP, and other qualified retirement deductions or taxes). Also, any taxable benefits the employee receives should be added, such as the value attributed to group term life insurance in excess of $50,000, the value of disability insurance paid by the employer that the employer treats as taxable wages, and any taxable wellness benefits.

No. Only include employer contributions and employee pretax payroll deductions for cafeteria plan benefits. This includes both employer contributions and employee pre-tax payroll deductions for health and welfare insurance premiums, Health FSA Contributions, Dependent Care Contributions, and HSA Contributions. If you are unsure of what benefits you offer on a pre-tax basis through your cafeteria plan, please consult your cafeteria plan document and your payroll department. If you are a BESTflex client with EBC and are using EBC’s standard plan documents, you can find a copy of your plan document on your employer online account at www.ebcflex.com. Navigate to Plan Information for BESTflex, and scroll down to download the My Company Plan document. This document will contain information about the benefits your company is offering on a pre-tax basis through your company’s cafeteria plan, according to our records.

No. In addition to the amounts in Columns B through E, you need to include the employer’s share for the premiums included in Column D.

No. Only include premiums which are funded in part or in whole through pre-tax payroll deductions. If the premium is 100% paid by the employer or the employee share is post-tax, then that premium should not be included in the total.

The amount the employees are required to pay for dental and vision, plus the employer’s portion of the dental and vision premiums, should be included. The employer’s contribution towards employees’ medical premiums would not need to be included since the employer pays 100% of those premiums.

Some companies pay for an employee’s self-only coverage at 100% but subsidize dependent coverage (i.e., family coverage) at a lesser percentage. Unfortunately, the IRS has not provided guidance regarding this premium approach and nondiscrimination testing. Therefore, your company should choose one of the following two options:

1. 1. Include family premiums but not self-only premiums. The rationale for this option is that the self-only premiums are not funded through pre-tax payroll deductions. This is a more cautious approach under the regulations. However, this more cautious approach can make it more difficult to pass certain cafeteria plan tests.
   2. Include family premiums AND self-only premiums. The rationale for this option is that it arguably is more fair for the employer to get credit for paying 100% of self-only premiums in the test. Under this argument, an employer paying 100% of self-only premiums should have an easier time passing nondiscrimination testing than an employer paying less than 100%, so it makes more sense to include self-only premiums 100% paid by the employer.

If your company is unsure of which option to choose, please consult with your company’s legal counsel. Employee Benefits Corporation is not able to choose an option for your company.

Use either the premium equivalent determined by your plan administrator or the COBRA premium, not including the 2% administrative expense. Then subtract the employee’s pre-tax share to determine the employer share.

EBC uses ownership percentage to determine whether an owner is a Highly Compensated Individual or Key Employee for purposes of nondiscrimination testing. Failure to enter ownership percentages may result in inaccurate nondiscrimination testing results.

An employee who is a spouse, parent, child, or grandchild of an owner is usually considered to have the same percentage of ownership as the owner due to the Internal Revenue Code § 318 Attribution rules. Therefore, employees related to owners should usually also be identified as owners.

Unfortunately, a “black and white” rule doesn’t exist for determining which individuals on the list are officers. According to IRS guidance, the term “officer” is determined by all the facts and circumstances, including the person’s authority and the nature and extent of their duties. Generally, an officer means an administrative executive who is in regular and continued service.

Examples of “officers” would include: the President, Treasurer, CEO, CFO or Secretary of a company; the superintendent of a school district; a director of a non-profit organization, etc.

The “Is Participating” column automatically enters a “yes” if the employee has a Health FSA Contributions and “no” if the employee does not. Please ensure that the Health FSA Contributions column is completed accurately if this column is not showing a correct response.

“Is Ineligible” means that the employee is not eligible to participate in the cafeteria plan. If the employee is not eligible to participate in pre-tax premium deductions, FSAs, or HSAs, please indicate “yes.” Otherwise, please indicate “no.” Please note that the spreadsheet template assumes that eligibility does not vary between Health Care FSA, Dependent Care FSA, and Cafeteria Plan.

If the employee was eligible to participate in pre-tax premium deductions, FSAs, or HSAs for any part of the plan year, please enter “no”. Please only enter “yes” if the employee was ineligible to participate in any of these for the entire plan year.

You may choose to enter “No” for all individuals listed; however, if your company regularly fails one or more nondiscrimination tests, it may be beneficial to identify those individuals who fall into one of the categories listed below.

An employee can be excluded if any of the following is true:

(1) employee is ineligible due to a collectively bargained agreement
(2) employee is a nonresident alien with no U.S. source of income; or
(3) employee is participating in the cafeteria plan under a COBRA continuation provision.

You may choose to enter “No” for all individuals listed; however, if your company regularly fails one or both Health Care FSA nondiscrimination tests, it may be beneficial to identify those individuals who fall into one of the categories listed below.

“Yes” should be entered for the employee if any of the following is true:

(1) employee is part-time (customarily works less than 25 hours per week) or seasonal (customarily works less than 7 months per year)
(2) employee is under the age of 25; or
(3) employee has not yet completed three years of service.

We changed our nondiscrimination testing procedures to meet employer expectations for a simpler data collection process and a faster turnaround time for testing results.

Here are the exciting changes:

• Faster online access to testing results
• Data collection worksheet with new look and feel
• New online resources with FAQs, data completion instructions, and test results information

We will no longer support the “old” worksheet after 9/1/2022. If you need assistance with completing the worksheet, please contact your Client Representative or the compliance services team at complianceserviceshelpdesk@ebcflex.com, or reach us by phone at 800-346-2126 x465.

If your company completes the worksheet in full, it allows us to complete your company’s nondiscrimination testing in a short amount of time, getting your company’s results to you faster.

Information about FSA elections is necessary for completing nondiscrimination testing. Your company most likely maintains FSA election information for payroll purposes and can use that information to complete the worksheet.

In addition, if EBC provides your company with FSA administration, you can download a Nondiscrimination Testing Annual FSA Elections report from your EBC employer online account that shows your FSA participants along with what each participant elected for their Health Care FSA and Dependent Care FSA. The report is available under the Reports section.

An hourly fee will apply if your company elects to have EBC enter your company’s FSA elections into the worksheet. Email complianceservices@ebcflex.com for more information.

Technically, nondiscrimination testing requires information about each employee’s annual contribution amounts. Because an employee’s contribution amounts may vary from month to month depending on employee status changes, an annual contribution amount will lead to more precise results than a monthly contribution amount multiplied by 12.

Your company will now receive results for each nondiscrimination test that is conducted. These results are listed in a PDF document with “PASS” or “FAIL” denoted for each test. We recommend that you review your results side-by-side with the About Your Test Results webpage where you can learn more about each test, what a passing or failing result means, and how to correct a failing result.

For privacy and security purposes, our new Nondiscrimination Testing Worksheet is designed not to include specific employee names. Therefore, we no longer provide a specific list of employees that your company may need to tax to correct a failed nondiscrimination test. To help you identify these employees, we have provided detailed instructions at our About Your Test Results webpage.