Question Government agency sponsored Cafeteria plans?

[Guest EEC]

If a government agency is the employer, and they have a cafeteria plan. What is the definition of a highly compensated employee and key employee for discrimination testing?

Are these plans subject to discrimination testing for key and highly compensated employees ?

[papogi]

Government plans get around ERISA's Form 5500 filing requirements, but they still have to abide by Section 125 non-discrimination rules for qualified status. The definitions are the same as for non-governmental plans. The IRS does not outright define HCE's, and instead leave it open to judgment in each case. What it does tell you is that officers, 5% owners, HCE's, and spouses/dependents of those individuals are all highly-compensated individuals. Section 125 does not override separate non-discrimination rules that apply to each benefit offered under the 125 plan, rather they operate in addition, so you'll have to address each benefit separately. As far as key employees, they generally are those who are officers and make over $130,000, 5% owners, or 1% owners who make over $150,000.

[SLuskin]

Right, but there are no owners in the gov't plan. Are the officers those who are elected? What about people who are appointed? We have never done a gov't plan due to the red tape that is involved, but would still be interested to see the answer.

[papogi]

Since there is no clear cut definition, you will just have to use a reasonable interpretation (hence SLuskin's very defendable position to steer clear of government agencies). The IRS will look at a person's job responsibilites and duties, not just their title. They will look at the source of the person's authority (the higher-up the grantor of authority, the better chance of being an officer), and they will also take into account the term period that the employee is elected or appointed to (longer term meaning a greater chance of being an officer). Also, an employer with over 491 employees can have no more than 50 officers. Yes, the 5% and 1% ownership qualifications will not apply. You are correct that this is a vague area, as are several things in Section 125.

[mbozek]

The only revalent category is officer but governments have few if any persons who are appointed to act as an officer of the govt. An elected or appointed official is not automatically an officer. See reg 1.416-1, T-13- Officer must have authority as well as title of officer. Since there are very few officers who make over $130k in government there will be few persons who will be classified as HCEs.