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Section 125

Section 125 Nondiscrimination Testing Suite

What Tests Are Required?

If you sponsor a Cafeteria/Section 125 Plan, there are three tests to complete.  If you also offer Health Flexible Spending Account (FSA) or Dependent Care FSA benefits, there are additional tests to complete.  All of the possible tests are listed below.  Simply click on the test(s) that pertain to your plan to learn more.

Cafeteria Plan Tests

  1. Cafeteria Plan Eligibility Test
  2. Cafeteria Plan Contributions & Benefits Test
  3. Cafeteria Plan Key Employee Concentration Test

Health FSA Tests

  1. Health FSA Eligibility Test
  2. Health FSA Benefits Test

Dependent Care Tests

  1. Dependent Care Eligibility Test
  2. Dependent Care More-Than-5%-Owners Test
  3. Dependent Care 55% Average Benefits Test
 

Why Is Testing Important?

Your plan allows employees to pay for their health care and dependent care expenses on a pre-tax basis. This saves both you (the employer) and them (the employees) money on income taxes and Social Security taxes.

In order for highly compensated and key employees to get these benefits, the plan must not discriminate in their favor. In other words, key employees and highly compensated employees cannot receive a better benefit than other employees.

Should You Self-test?

This testing suite allows you to run any one of the nondiscrimination tests at any time during the plan year.  The suite also allows you to run your year-end test through the site when you are ready to do so.  Simply click on the tests that pertain to your plan using the links above.  You will be able to run each test and print a copy of the results for your records.

Alternatively, Sentinel Benefits can complete the tests for you for an additional cost. If you would like Sentinel Benefits to perform the tests on your behalf, download this spreadsheet and complete it with your census data and email it back to FSAServiceTeam@sentinelgroup.com. (You will need to save the spreadsheet on your computer before you can email it back to Sentinel Benefits.)

Important Definitions

Read our Alert with additional details about the compensation threshold.


Highly Compensated Individual (HCI):

(To be used for the Cafeteria Plan Eligibility Test)
 
  • An Officer during preceding plan year (or current plan year in the case of the first year of employment)
  • A more-than 5% owner of the employer during the preceding or current plan year
  • An employee with annual compensation more than the “Highly Compensated Employee” specified dollar threshold for the preceding year (or current plan year in the case of the first year of employment)
  • For 2019, an employee with compensation over $125,000 in 2018
  • Spouse or dependent of any of the above

Highly Compensated Participant  (HCP):

(To be used for the Cafeteria Plan Contributions & Benefits Test)
 
  • HCI who is eligible to participate

Key Employee:

(To be used for the Cafeteria Plan Key Employee Concentration Test)
 
  • An Officer of the employer with annual compensation in excess of a specified dollar threshold ($175,000 for 2018 and $180,000 for 2019);
  • A more-than 5% owner of the employer; or
  • A more-than 1% owner of the employer with annual compensation in excess of $150,000 (not indexed)

Highly Compensated Individual (HCI):

(To be used for Health FSA Eligibility and Benefits Tests)

  • One of the five highest paid Officers;
  • A shareholder who owns more than 10% in value of the stock of an employer; or,
  • Among the highest paid 25% of all employees (other than excludable employees who are not participants)

Please Note: In determining the top 25% of employees by pay, you can exclude all of the following IF they’re not participating:  Those with less than 3 years of service, those who are under age 25, part-time and seasonal employees, union employees and non-resident aliens with no US source income.

Highly Compensated Employee (HCE):

(To be used for the Dependent Care Eligibility, Contributions & Benefits, and  55% Average Benefits Tests)  

  • A more-than 5% owner of the employer; or
  • An employee with annual compensation in excess of the “Highly Compensated Employee” specified dollar threshold for the preceding year
  • For 2019, an employee with compensation over $125,000 in 2018

Please note that Sentinel Benefits does not keep record of the testing conducted through this portal. Print the results of each test to retain for your records.