Health FSA nondiscrimination

[Guest Brenda N.]

Is is ok to use the 414(q) definition of HCE for Health FSA testing? Or does it have to be the definition under 105(h)?

[papogi]

An HCE is not necessarily one defined under 414. Unfortunately, the IRS says in Section 125, "the classification of a participant as highly compensated for this purpose will be made on the basis of the facts and circumstances of each case." The 414 definition is generally more restrictive than the 105 definition. I would apply both definitions, and be sure that you pass both. With little guidance from the IRS, I would err on the side of caution. Other opinions would be appreciated...