Non-Discrimination Testing

Non-discrimination rules are enforced by the IRS to prevent highly compensated or key employees from using reimbursement plans as tax shelters. These rules prohibit discrimination in favor of highly compensated employees in terms of eligibility and participation in the plan. Failure to follow non-discrimination rules can result in the disqualification of all highly compensated employees and taxing of any funds dispersed to them.

 

The IRS regulations surrounding nondiscrimination are open to interpretation. Any legal questions should be directed to your legal department or employer groups, as they are ultimately responsible for knowing and interpreting the IRS regulations. BABD runs reports based on the data provided by its clients and provides the results. Nothing provided by BABD should be construed as legal advice.

 

Current information about non-discrimination requirements is available here:

Employee Benefits Institute of America (https://tax.thomsonreuters.com/checkpoint/EBIA)

Internal Revenue Service (irs.gov)

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BABD performs non-discrimination tests on the following:

Annual pre-tax group premiums

Medical Flexible Spending Account plans

Dependent Care Plans

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Each test includes three sections:

Test Results: Calculation and Results (Pass, Fail, or Review)

Test Keys: Explanation of terms and calculations on Results page

Test Data: All data used for a particular test