Discrimination testing of cafeteria plan

[cathyw]

An employer maintains a 125 plan which includes pre-tax insurance premiums, health FSA (funded solely by salary reduction) and dependent FSA (funded solely by salary reduction). The plan passes the 25% concentration test and the utilization test when aggregating all benefits, and it also passes the separate DCAP tests. Is there separate testing required for the health FSA in addition to the aggregated tests?

thanks.

[Chaz]

The health FSA is a self-insured medical plan and therefore needs to separately satisfy the self-insured medical reimbursement plan nondiscrimination tests set forth in Code Section 105(h).

[cathyw]

Thanks.

[cathyw]

One follow-up. Since the FSA is funded solely by employee salary deferrals, am I understanding 105(h) to say that if there is at least one non-highly compensated employee who doesn't elect a salary deferral then the plan is discriminatory because the contributing HCEs will be entitled to a benefit that is not available to all other participants?