Nondiscrimination Testing

Question 1

What are the three general tests for cafeteria plans

Answer 1

1. An eligibility test
2. A contributions and benefits test
3. The key employee concentration test

Question 2

The plan may not discriminate in favor of highly compensated individuals as to the ability to participate

Answer 2

Eligibility test

Question 3

The plan must make contributions and benefits available on a nondiscriminatory basis, and the plan fails the test if highly compensated individuals select more nontaxable benefits than non highly compensated individuals select

Answer 3

Contributions and benefits test

Question 4

The plan’s key employee contributions cannot exceed 25% of the total contributions into the plan

Answer 4

The key employee concentration test

Question 5

What is part one of the eligibility test

Answer 5

No employee be required to complete more than three years of employment as a condition of eligibility and all employees be subject to a uniform eligibility requirement

Question 6

What is part two of the eligibility test

Answer 6

facts and circumstances determination. The cafeteria plan may not discriminate in favor of highly compensated individuals.

Question 7

What does a highly compensated individual mean

Answer 7

5% owner
A highly paid person
A spouse or dependent of an employee meeting one of these criteria