Discrimination Testing by Category or Total Pre-Tax Benefits?

[Guest BeneGal]

Group has FSA with Premiums, Medical Reimbursement & Dependent Care Reimbursement categories.

If I do the discrimination test individually for each category they only pass 2 of 3

But, if I do TOTAL pre-tax benefit amounts then the the test passes.

(ex)

Premiums - Pass

Medical - Pass

DC - Fail

Total plan key ee amounts = $900.00

Total plan pre-tax amounts (all ee's including key) = $3800.00

900 / 3800 = 24%

Is it ok to use TOTAL BENEFITS OF THE PLAN???

Thanks!!!

[Guest b2kates]

dependent care discrimination testing is determined separately under Section 129(d) of the Internal Revenue Code.

Not in the aggregate under a cafeteria plan.

[Guest BeneGal]

So does that mean the Premiums & Medical Reimbursement categories can be done together and keep it at 25% or below?

I know there is a separate test for Dependent Care with regards to highly compensated employees but I thought that that DC is still also part of the "pre-tax" benefits for key employee testing (that are not HC) as well.

I appreciate any input.

[g8r]

There are different levels of testing.

For the cafeteria plan, the 25% test is based on all of the benefits.

In addition (and not in lieu of), each benefit may be required to pass its own nondiscrimination test. For example, dependent care has separate tests under 129 (a 25% test and a 55% average benefits test plus eligiblity tests). There is no separate test for medical insurance premiums (it's been a long time now, but hurray for the repeal of IRC 89). The health FSA is subjet to 105(h) although the benefits tests is not a problem as long as everyone can elect the same maximum.

Nondiscrimination testing for a cafeteria plan is area where IRS guidance would be very welcome.