End of Year Guide

Non-Discrimination Testing (NDT)

What is Non-Discrimination Testing (NDT)? 

Non-Discrimination Testing (NDT) is a federal requirement of The Employee Retirement Income Security Act of 1974 (ERISA), and compliance with NDT is overseen by the IRS. NDT applies to the following health and welfare benefit plans:

  • Self insured group health plans (IRC §105)
  • Group Life Insurance Plans (IRC §79)
  • Cafeteria plans (IRC §125)
  • Dependent care assistance plans (IRC §129)

The purpose of NDT is to demonstrate that the benefit does not discriminate in favor of highly compensated employees.

When is Non-Discrimination Testing (NDT) performed? 

Non-Discrimination Testing, along with necessary remedies, must be completed at the end of the plan year. While these tests aren't filed with any government agency, it's essential to document your testing methodology and results for potential IRS audits.

Benepass administers Non-Discrimination Testing (NDT) for your Health FSA and Dependent Care FSA.

What tests are performed? 

  • Cafeteria Plan Tests 
    • Cafeteria Plan Eligibility Test
    • Cafeteria Contributions & Benefits Test
    • Cafeteria Plan Key Employee Concentration Test
  • Health FSA Tests
    • Health FSA Eligibility Test: Under the Health FSA Eligibility Test, a plan may not discriminate in favor of highly compensated individuals (HCIs) as to eligibility to participate. A plan may satisfy any of these three sub-tests in order to pass:
        • Subtest #1: The plan benefits 70% of all non-excludable employees.
        • Subtest #2: The plan benefits 80% or more of all non-excludable employees who are eligible to benefit, if 70% or more of all non-excludable employees are eligible to benefit under the plan.
        • Subtest #3: Nondiscriminatory Classification Test. Safe Harbor and Unsafe Harbor Percentage Tests.
    • Health FSA Benefits Test
  • Dependent Care Tests
    • Dependent Care Eligibility Test
    • Dependent Care Contributions & Benefits Test
    • Dependent Care More-Than-5% Owners Test
    • Dependent Care 55% Average Benefits Test

How frequently should I undergo testing?

  • Testing is typically recommended at the end of the plan year. However, Benepass offers two (2) tests per plan year: one mid-year and one end-of-year that is included in your pre-tax bundle.
    • If you've previously failed NDT, we recommend conducting a mid-year NDT test to implement remedies before the year-end test. 
  • Each additional test beyond the two (2) tests will result in a fee of $500.

How to complete NDT with Benepass

Here is the template to download to complete the test. 

  • Download and Complete the Template:
    • Please make a copy of this template, and rename the template to PlanYear_Company Name_NDT_CurrentDate
    • Fill out the "FSA Data" and "Subjective Questions" tabs in the Excel template. Detailed explanations for each question are provided within the template.
      • For additional guidance on completing the "FSA Data" tab, refer to the "Data Explanation" tab
      • For more information on completing the "Subjective Questions" tab, refer to the explanations provided on the same page.
  • Submit the Template:
    • Once completed, upload the spreadsheet via our secure Dropbox and notify your Customer Success Manager. 

When to expect your results

  • After your Customer Success Manager verifies the data, it generally takes about two weeks to process and receive your results.

What should you do with your results?

  • Passing Results: Retain a copy of the organization's results for the same duration that your organization keeps documents related to its benefits plans, typically 7 years.
  • Failing Results: Begin by verifying the accuracy of the submitted data and resubmit the template if errors are identified. If this does not result in a passing outcome, evaluate whether changes to elections can be made before the end of the plan year or how benefits may be taxed to highly compensated employees. For further information, reach out to your Customer Success Manager.

What are the risks of not completing Non-Discrimination Testing?

  • IRS Audit Risk: If your organization’s cafeteria plan and FSAs were audited by the IRS and found to discriminate in favor of highly compensated employees and other key individuals, the IRS could assess taxes and tax penalties. The IRS has up to 3 years, and in some cases up to 6 years, to audit an employer, so the risk can last for several years.
  • Reporting to Government Agencies: You are not required to submit your results to the IRS or any other government agency but it is advisable to retain your company's nondiscrimination testing results.

Questions? We are happy to help! Please reach out to the Benepass Admin Support Team by emailing admin@getbenepass.com.

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