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"Benefits test" for cafeteria plan discrimination

Moe Howard

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A company offers fully-insured medical coverage to certain classes of its employees.

The company pays some of the medical premiums and the remainder of the premiums are withheld from covered employees via pre-tax withholdings (cafeteria plan).

I realize that the cafeteria plan must pass three types of discrimination tests ....1) Eligibility test 2) Benefits test and 3) Concentration test.

I understand what the Eligibility test & Concentration test are ..... BUT What is the Benefits test ? How does the Benefits tests work? .... and what is meant by the word "benefits"?

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  • 2 weeks later...

There is no guidance on the "benefits" test. Based on the proposed regulations, it appears to be a utilization (rather than availability test), but it makes no sense. I don't know of anyone who even attempts to deal with this test. I guess the good news is that if a cafeteria plan were audited, the IRS wouldn't know how to apply the test either.

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