Health FSA Eligibility Test (Continued)

Section 125 Nondiscrimination Testing Suite

Highly Compensated Individual (HCI):

  • 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)

If your Plan did not pass the Health FSA Eligibility Test based on the previous criteria, the Plan may still pass via the Nondiscriminatory Classification Test.  Under this requirement, a classification is not discriminatory for a plan year if, and only if, the group of employees included in the classification benefiting under the plan satisfies either a “safe harbor percentage test” or an “unsafe harbor percentage” test for the plan year. These tests are described in the subsections below.

The Safe Harbor Test compares the percentage of non-excludable non-highly compensated employees who are benefiting under the Plan with the percentage of non-excludable highly compensated employees who are benefiting under the plan.

The following steps must be taken to determine if the Safe Harbor Percentage Test is satisfied:

1. Determine the plan’s Ratio Percentage. A plan’s Ratio Percentage means the percentage (rounded to the nearest hundredth of a percentage point) determined by dividing the percentage of non-HCIs who benefit under the plan by the percentage of HCIs who benefit under the plan. The Ratio Percentage can be determined as follows:  

Non-HCIs who benefit:
All non-excludable non-HCIs:
HCIs who benefit:
All non-excludable HCIs:

2. Determine the Plan’s Non-HCI Concentration Percentage. A plan’s Non-HCI Concentration Percentage means the percentage of all employees of the employer who are non-HCIs. Employees who can be excluded are not taken into account. To determine the Non-HCI Concentration Percentage, calculate the following:

Non-excludable non-HCIs:
Total non-excludable non-HCIs and non-excludable HCIs:

3. Once the Plan’s Non-HCI Concentration Percentage has been determined, the Safe Harbor and Unsafe Harbor Percentage is identified by using the Nondiscriminatory Classification Table. Find the applicable Non-HCI Concentration Percentage in the far left column, and match that with the corresponding Safe Harbor Percentage in the middle column. If the Plan’s ratio percentage is equal to or greater than the safe harbor percentage, then the plan’s employee classification meets the Safe Harbor and is deemed nondiscriminatory.

If the plan fails the Safe Harbor Percentage Test, then the plan still may pass the Unsafe Harbor Percentage Test component of the Facts and Circumstances Test. To pass the Unsafe Harbor Percentage component of this test, the plan’s ratio percentage must be greater than or equal to the corresponding Unsafe Harbor Percentage. As described above, the Unsafe Harbor Percentage is determined by calculating the Non-HCI Concentration Percentage and finding the corresponding Unsafe Harbor Percentage on the Nondiscriminatory Classification Table.

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

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