The Benefits Academy
  • Home
  • Products
  • WA State Long Term Care
    • The TBA Alternative
    • More LTC Info
    • LTC Calculator
  • Our Story
    • Fan Page
  • Blog
  • Contact
  • Agent Login

Benefits Bites

Navigating the Minefield of Nondiscrimination

8/17/2020

0 Comments

 
Picture
The old adage "you can't get something for nothing" applies when it comes to tax-exempt benefits programs and nondiscrimination testing. Here's an overview.

One of the most attractive features of group-sponsored benefit plans is their tax-exempt status. Employers offering coverage can log their expenses as tax deductions. Employees paying their share of premiums through an employer’s cafeteria plan can do so with pre-tax dollars. As with any tax break offered by the IRS, there are some hurdles that must be met. For group-sponsored benefits, the hurdle is passing nondiscrimination testing - the plans cannot discriminate in favor of Highly Compensated Individuals (HCI) and/or key employees.
 
The List is Long
There are a number of nondiscrimination tests required of a benefits program. Some benefits need to pass more than one set of tests, which makes it even more complicated. If an employer offers a tax-free benefit to their employees, you can bet a test will be required.
  • Section 105(h) – self-insured (including level-funded) health plans, health FSAs and HRAs
  • Section 125 – health plans, HSA contributions deposited pre-tax through the Cafeteria plan
  • Section 129 – Dependent Care Accounts
  • Section 223 – Health Savings Accounts, if outside of the Cafeteria plan
  • Section 79 – Group Term Life plans
In the context of nondiscrimination testing, “health plans” include medical, dental, and vision plans as well as accident, illness and critical illness type policies. 

​Outside of the context of this article, there are other nondiscrimination tests to be aware of, including, but not limited to:
  • Section 127 – Education Assistance programs
  • Section 137 – Adoption Assistance programs, if outside of the Cafeteria plan
  • Section 117 – Qualified Tuition Reductions
 
No Different Strokes for Different Folks
Unfortunately, each of the nondiscrimination tests seem to use different definitions of highly compensated and Key employees, making the testing that much more complicated, especially when a program is subject to more than one test. In a recent NAHU webinar, Dr. Ramesh Raghunathan from CXC Solutions summed up the differences in a table: 
Picture
I highly recommend this webinar – it is one of the best that I have watched in years. You do need to be a member of NAHU to have access.
 
The Self-Insured Pitfall
Section 105(h) nondiscrimination testing applies to self-insured plans. This not only includes health plans, but also health flexible spending accounts and health reimbursement arrangements. You may remember that the Affordable Care Act expanded this testing to include fully insured plans, but thankfully that requirement has been on hold for more than a decade waiting for additional clarification. 

In my opinion, this is one of the strictest nondiscrimination tests. The plan must pass two tests, one being a benefits test. Under this test, the plan must not offer different benefits, employer contributions, or waiting periods to different eligible classes. Failure to pass nondiscrimination testing will not impact nonHighly Compensated Individuals (NHCI) and the overall plan will retain its tax-favored status. However, any health reimbursements (including payments to health care providers for covered services) under the failing self-insured plan become taxable income to all defined HCIs.

The most common misstep I see is when a plan moves from fully-insured to level-funded. Since level-funded plans are categorized as self-insured in the eyes of nondiscrimination testing, care must be taken to ensure that the new plan complies with this basic benefits test under Section 105(h).
 
Additional Resources
We have a number of articles outlining the specifics of various nondiscrimination tests (NDT). Check them out here:
  • NDT – Intro and Data
  • NDT – 105(h) Self-funding
  • NDT – 125 Cafeteria Plan
  • Section 79 – Employer Paid Life
  • Section 79 – Employee Paid Voluntary Life

 The Bottom Line
It is never fun for an employer to have to announce to HCIs and Key employees that they need to pay taxes on benefits. Worse are the penalties and interest that can accumulate if an employer never does their testing and the IRS/DOL uncover the issue during a benefits audit. Employers rely on their benefits consultant to ensure that they are complying with regulations. Therefore, understanding the nondiscrimination testing requirements is the first step toward walking your clients through the minefield.

Be Benefits Informed
At The Benefits Academy, our mission is to bring you tools and resources to help you be a more effective benefits professional. We have a number of free offerings to keep you up to date:
  • Sign up for access to our Broker Resources Library. This is a free collection of curated articles for brokers, employers and employees on a broad range of benefits topics.
  • Subscribe to our Benefit Bites eNewsletter. Twice a month we are sharing industry news, events and the latest tools and resources.
  • Follow us on LinkedIn and Twitter or like us on Facebook for the latest breaking news.
0 Comments



Leave a Reply.

    This section will not be visible in live published website. Below are your current settings:


    Current Number Of Columns are = 1

    Expand Posts Area =

    Gap/Space Between Posts = 10px

    Blog Post Style = card

    Use of custom card colors instead of default colors =

    Blog Post Card Background Color = current color

    Blog Post Card Shadow Color = current color

    Blog Post Card Border Color = current color

    Publish the website and visit your blog page to see the results

    About Sandy

    I love numbers.  I'm a math geek. I read benefits industry articles and periodicals for relaxation (but, honestly, I'm still a fun gal).  I also like to share what I've learned and you'll find it all here.

    View my profile on LinkedIn

    Archives

    September 2022
    July 2022
    December 2021
    November 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    October 2019
    September 2019
    August 2019
    July 2019
    June 2019
    May 2019
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    November 2017
    October 2017
    September 2017
    August 2017
    July 2017
    June 2017
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    November 2016
    October 2016
    September 2016
    August 2016
    June 2016
    May 2016

    Categories

    All
    2017
    2018
    2019
    2020
    2021
    2022
    2023
    ACA
    ACA Lawsuits
    ACA Reporting
    ADA
    Aetna
    Age-banded Rates
    AHP
    Ambetter
    Association Health Plans
    Associations
    Asuris
    Balanced Billing
    Benefit Bites
    Benefits Coordination
    Biden Administration
    Bridgespan
    Bridge Span
    Busy Season
    Carrier Corner
    Carrier Exit
    Cascade Care
    CMS
    COBRA
    Community Health Plan
    Community Rated Plans
    Compliance Notices
    Continuation
    Conversion
    Coordinated Care
    Coronavirus
    Cost Sharing Programs
    Cost Sharing Reduction
    Data Match
    Dependents
    Direct Primary Care Programs
    Disability Insurance
    Domestic Partners
    EIDL
    Executive Order
    Facility Fees
    Facility Scope Creep
    FAIR Health
    FFCRA
    FSA
    Group Health
    Group Life
    HDHP
    Health Alliance NW
    Healthnet
    Health Savings Account
    Heart Health
    HRA
    HSA
    ICHRA
    Individual
    Individual Coverage Health Reimbursement Arrangement
    Individualized Medicine
    Individual Mandate
    Individual Penalty
    IRS
    Kaiser
    Kaiser NW
    Kaiser WA
    Life Insurance
    Lifewise
    Long Term Care
    Long Term Care Services And Support Trust Act
    Mandate
    Medicaid
    Medicare
    Medicare For All
    Micro Group
    Moda
    Molina
    Monthly Freebies
    Networks
    Nondiscrimination Testing
    Notice Requirements
    Paid Family & Medical Leave
    Pandemic
    Part D
    Partnership
    PCT Updates
    Penalties
    PFML
    Pharmacogenomics
    Plan Comparison Tool
    Portability
    PPO Networks
    PPP
    Premera
    Prescription Assistance Programs
    Pre-Tax Premiums
    Providence
    PTO
    Public Option
    QSEHRA
    Rates
    Referenced Based Pricing
    Regence
    Regence OR
    Reinsurance
    Renewals
    Repeal
    Risk Adjustment
    Risk Corridor
    Rx Copay Accumulator Programs
    S-Corp
    Section 105(h)
    Section 125
    Section 79
    Self Funded
    Self-funded
    Short Term Medical Plans
    Single Payer
    Small Employer Health Credit
    Small Group
    Social Distancing
    Stimulus
    Subsidies
    Tax Credits
    Trump
    Trust Plans
    Uninsured
    United Hea
    United Healthcare
    Vetted Vendor
    WA Cares
    WA LTC
    WA OIC
    Washington State
    Wellness Program

    RSS Feed

Services

Products
Resources

Company

Our Story
Blog
​Fans

Support

Contact
​Agent Login
© COPYRIGHT 2020. ALL RIGHTS RESERVED.
  • Home
  • Products
  • WA State Long Term Care
    • The TBA Alternative
    • More LTC Info
    • LTC Calculator
  • Our Story
    • Fan Page
  • Blog
  • Contact
  • Agent Login