Discrimination Testing for 125 Plans and Underlying Benefits.

[Guest Thornton]

A law firm operates as a C-corp. It sponsors a cafeteria plan consisting offerring a Health FSA Medical Reimbursement Plan and a DCA Plan.

There are 13 attorney/key employees and 20 non-key employees. I understand that three discrimination tests need to be performed annually: the cafeteria plan, the Health FSA and the DCA. The Health FSA is funded solely with salary reduction contributions and is available on a nondiscriminatory basis, so probably passes. I believe we're ok on the DCA, although the 55% test might be a problem. Questions:

Am I correct that three tests must be done?

Although the Health FSA probably passes its own nondiscrimination test, the key employees want to defer more than 25% of the total deferrals into this plan. Are the Health FSA and DCA deferrals conbined when testing the cafeteria plan?

Can separate cafeteria plans be set up for each benefit?

Thanks.

[SLuskin]

The test for daycare is 5% owners, instead of key. Also, with the 55% average benefits test, you test on highly compensated. You can use the top 20% election to help pass the test. I think that you can't have 2 plans like this to get around discrimination issues.

[Guest G Burns]

Are you really sure that this law firm is a C corp ?

[Guest A Angel]

FACTS:

An LBA sponsors a cafeteria plan offering dependent health insurance coverage. Employee health insurance coverage is paid for all employees (no cash option). Because it is mostly the highly compensated participants who have non-working spouses and, therefore, are choosing dependent coverage, the plan is not passing the discrimination test.

Question:

Is there any support for including the core benefit (employee coverage) when performing the testing?

[Guest DBS]

I realize that this is an old thread but I have the same question. We have recently hit a brick wall with our new administrator concerning medical FSA discrimination testing. Our company pays 100% of health insurance and pays employee only portion of family coverage. Additionally, although our medical FSA is offered evenly to all full time employees, not many non-highly compensated employees choose to participate. Furthermore, our HCE's understand the tax value and several choose to put in the maximum allowed by our plan. As a result, our administrator is forcing us to lower the amounts for any HCE drastically to meet "discrimation" guidelines. Any basis to our argument that health insurance be included in this testing or does it have to be tested separately? Any feedback or help on where to look would be greatly appreciated!!!

[Kirk Maldonado]

There are a number of law firms that are C Corporations; I've worked at two different law firms that were C Corporations.