What is compliance testing for LPFSAs?
What is Compliance Testing for LPFSAs?
Compliance testing (also known as non-discrimination testing) ensures that a company's Health Care or Dependent Care FSA treat all employees equally, and do not favor key or highly compensated employees (HCEs).
Zenefits FSAs are automatically compliant with Section 105 non-discrimination regulations.
However, Zenefits does not administer the following Section 125 compliance tests. Please consult a legal advisor with any questions or concerns regarding these tests.
Health Care FSA Sec 125 Compliance Testing
Three tests are used to determine the compliance of a Health Care FSA:
- Eligibility Test
- The number of non-HCEs that participate must be at least as much as the number of HCEs. - Benefits Test
- The required employee contribution must be identical for each benefit level;
- The maximum benefit level that can be elected cannot vary based on percent of compensation, age or years of service
- The same type of benefits (i.e., health care expenses) provided to highly-compensated employees must be provided to all other participants; and
- Disparate waiting periods may not be imposed. - Key Employee Concentration Test
- The value of non-taxable benefits selected by Key Employees cannot exceed 25% of the total non-taxable benefits selected by all participants under the plan.