Section 129 NDT testing

[Guest JM]

Our company has just begun administering our own flexible spending accounts. What tests do we need to perform for Non discrimination testing? If you can direct me to an online resource for the rules I'd appreciate it.

[Guest Linda Wyttenbach]

A Section 125 Cafeteria Plan must meet certain non-discrimination requirements set forth by the IRS. The average Dependent Care benefit provided to Non-Highly Compensated Employees must be at least 55% of the average benefit provided to Highly Compensated Employees. In addition, 5%+ owners cannot receive more than 25% of the total Dependent Care benefit. The Top-Paid Group Election for determining Highly Compensated Employees may be used. However, the method used to determine Highly Compensated Employees must be consistent for all plans sponsored by the employer (401(k), Profit Sharing, Section 125 Cafeteria, etc.). These tests are performed on the Dependent Care FSA portion of the plan only.

The 125 Cafeteria Plan as a whole must also meet certain non-discrimination requirements. No more than 25% of the benefits under the Plan may be provided to Key Employees.

The EBIA Cafeteria Plans Guidebook is a great source of all kinds of information relating to Section 125 Plans.

[Kirk Maldonado]

BNA Tax Management Portfolio #397 also has an excellent, in-depth discussion of cafeteria plans. I have the EBIA book, but I much prefer the portfolio.