What is Section 125 Nondiscrimination Testing? Your plan allows employees to pay for their health care and dependent care expenses on a pre‐tax basis. In order for Highly Compensated and Key employees to receive these benefits, the plan must not discriminate in their favor.

How does Premium Only plan Work?

What does a Premium Only Plan mean to you? Your employer is offering you the opportunity to pay your portion of insurance premiums with pre-tax dollars which can lower your taxes and increase your take-home pay. Your portion of insurance premiums will automatically be deducted from your paycheck on a pre-tax basis.

What are non-discrimination rules for cafeteria plans?

For Cafeteria Plans, these are referred to as non-discrimination rules, and these rules are in place to ensure the plan doesn’t discriminate in favor of highly compensated and/or key employees.

What are the requirements for a cafeteria plan?

An eligibility test. The cafeteria plan must benefit employees who qualify under an eligibility classification that does not discriminate in favor of highly compensated individuals. A benefits and contributions test. The contributions or benefits provided through the cafeteria plan may not discriminate in favor of highly compensated participants.

What happens if cafeteria nondiscrimination test fails?

If any test is failed, the constructive receipt exception will not apply to highly compensated participants or key employees, as applicable, and they will have the maximum amount of cash and taxable benefits that they could have elected through the cafeteria plan included in their income.

What is the cafeteria plan contributions and benefits test?

Cafeteria Plan Contributions and Benefits (C&B) Test What: he Contributions and Benefits Test is a three part test designed to make sure that contributions and benefits are available T on a nondiscriminatory basis and that highly compensated participants (HCPs) do not select more nontaxable benefits than non- HCPs do.