The time is fast approaching to complete your non-discrimination testing. Obviously with COVID-19, this year was quite a bit different than the previous. So, comes the question: will COVID-19 affect your non-discrimination testing results?
What is non-discrimination testing?
The IRS requires you to prove that your top paid employees and those in the highest positions don’t receive more benefits than employees who are paid less through what is called non-discrimination testing. You may have also heard it referred to as compliance testing. This requirement applies to the following plans:
- Section 125 cafeteria plans
- Self-insured health plans
- Dependent care assistance programs
The IRS requires testing for these plans and they must meet specified eligibility, benefits, and utilization requirements. Your tests should be completed as of the last day of the plan year. Additionally, they should take into account all individuals who were employed throughout the year, whether active or terminated, if they participated in any pre-tax benefits plans. Your results could be subject to an audit by the IRS.
Not sure if your plan falls under one of those three categories? Feel free to reach out to your Specialist for guidance.
How may COVID-19 affect non-discrimination testing results this year?
COVID-19 caused a lot of turmoil this year, and it likely had an effect on your company and its employees. Here’s how changes made to mitigate its impact may hurt your chances of passing this year’s compliance test.
- Employer changes. Did you reduce your staff permanently or temporarily? Alternatively, did you reduce employee salaries to get through the worst of it?
- Participant changes. Your employees may have made changes to their FSA plans. For example, your lower paid employees may opt to watch their own children while working from home instead of childcare. Your higher paid employees may continue to pay for child care even if they can work from home because they want peace and quiet while working (and, make enough money to justify the cost).
If any of the above sounds familiar, your test results may be affected. Read this article from PLANSPONSOR to better understand how.
Be ready for 2021
With COVID rates rising yet again, you may be faced with similar issues next year. To prepare, consider performing a “sniff test“. You can run what is essentially a practice test in the beginning or middle of the year to see how you are doing. If you notice any issues, you can make adjustments before the end of the plan year.
Completing your non-discrimination testing
Still haven’t completed yours yet? Watch the video walkthrough below created by the BRI Compliance Team. It covers:
- The basics of non-discrimination testing
- How to fill out different sections of the form
- Where to find information needed in order to fill out the form accurately
Contact your assigned representative for additional assistance.