Cafeteria Plan Tests

1. Cafeteria Plan Eligibility Test
To automatically pass the test, your plan must be offered to all of your employees except union employees and non-resident aliens. In addition, the requirements to join the plan must be the same for all employees, the premium paid through the plan must be the same for all employees and the waiting period must be less than 3 years. Please consult your plan document for the eligibility requirements of your plan.

2. Cafeteria Plan Contributions & Benefits Test
A plan cannot discriminate in favor of highly compensated participants as to contributions and benefits. If the plan consists solely of health insurance benefits and the employer pays for 100% of the cost of health benefits; or, pays 75% of the cost of the most expensive plan offered, the plan is deemed to be not discriminatory. If additional benefits are included (i.e. FSA benefits), the rule is that the percentage of benefit dollars compared to compensation for the Highly Compensated Participants group should be equal to or less than the same percentage for non-Highly Compensated Participants.

3. Cafeteria Plan Key Employee Concentration Test
This test measures the amount of pre-tax benefits provided to key employees versus all other employees. This is the test that small employers most often fail. Key employees cannot receive more than 25% of the pre-tax benefits from the plan.