5 Important Things to Know About Non-Discrimination Testing
July 6, 2017
If you're an employer, you know the importance of non-discrimination when it comes to offering benefits to your employees. And proving non-discrimination is something the IRS doesn't just suggest, but requires. So what exactly does this mean, and what's required for proof? Keep reading to learn more about non-discrimination testing, and complete the form below to see how leading technology transforms your administration experience.
What's required by the IRS?
The IRS requires non-discrimination testing for employers who offer plans governed by Section 125. This means any plans that allow employees to contribute pre-tax income into a benefits account, such as a Flexible Spending Account (FSA). And though they aren’t part of Section 125, testing is also required for Health Reimbursement Arrangements (HRAs) and Self-Insured Medical Plans (SIMPs).
Why does it matter?
The IRS mandates testing to make sure there isn’t discrimination between highly compensated employees (HCEs)/key employees and other employees at a company. To meet compliance, the test results need to demonstrate fairness in benefit plans among all levels of employees at a business. Failure to comply puts employers and their employees at risk of IRS penalties.
When should testing happen?
Non-discrimination testing should be performed by the last day of the current plan year and include all employees who were employed on any day during the plan year. It’s also recommended that employers test once in the middle of the plan year. This mid-year testing helps determine if additional steps should be taken to ensure the employer passes the test by the end of the plan year.
What tests are available?
Depending on an employer’s needs, there are a number of tests available. But all of them share three central criteria that are a focus of the test. A benefits plan will be considered discriminatory and fail to be in compliance if:
- Not enough non-HCEs are eligible for a plan.
- The HCEs or key employees are able to get more benefits than other employees.
- The HCEs or key employees take more benefits under the plan than other employees.
How do we simplify this kind of testing?
Unfortunately, some businesses fail to complete non-discrimination testing, either because their third-party administrator doesn’t provide the testing or because the system provided is too complicated.
That’s not the case with Discovery Benefits. We’ve simplified non-discrimination testing with our Discovery Tests™ tool, which allows a compliance contact within a client’s company to easily complete the tests directly from LEAP™ by Discovery Benefits, our easy-to-use employer portal. Discovery Tests™ offers testing for FSAs, HRAs and SIMPs. And because we know you’re busy and have enough on your plate, we make it faster and easier than ever to complete your tests and get on your way. That’s because Discovery Tests™ is:
- Easy to use. Testing can be done in five easy steps. Employers just log into LEAP™, find the right template, download it, fill it out and upload it back into LEAP™. That’s it! And we maintain responsibility on regulations, making sure the tests provide the compliance that you need. On top of that, we also provide support for the tool.
- Flexible. The testing is available at any time, on demand and on your schedule.
- Fast. You’ll receive your test results within minutes of uploading your data.
For more information on the Discovery Tests™ tool and the compliance testing we offer, watch our video.
Note: This post was originally published in July 2017. It was updated in March 2018.