ePOP Non-Discrimination Test Guide

LT
Written by Lucy Tran
Updated 3 months ago

1. Can employees enter the plan within 3 years of being hired and does this apply to all employees?

In order to be eligible for Section 125, and employer may not require their employees to wait longer than 90-days to participate in the Section 125/POP plan.  Also, all employees should be treated the same under Section 125.

2. Once an employee has met the employment requirement, is the employee able to enter the Plan on or before the first day of the following plan year?

See note on #1.

3. Are all employees eligible for the plan? (“All employees” refers to all Full-Time and Part-Time Employees.)

- 3a. This is referring to the plan design in general.  Even if an employer does not currently have any part-time employees, is the plan designed in such a way that, were there part-time employees, all would be eligible to participate in Section 125?  If all employees would be able to participate in Section 125, with no restrictions, then this question can be answered ‘Yes’.  If there are restrictions for participation in Section 125, then this question must be answered ‘No'.  

Note: Most plans will have to answer ‘No’ here.  Answering ‘No’ here will not fail the test.

- 3b. Has the employer established reasonable standards with regard to which employees are eligible to participate in the plan and which are not?

The site will provide a list of examples of reasonable standards for excluding participation from Section 125.  As long as the restrictions on who may participate are in line with the examples of acceptable standards, you can answer ‘Yes’.

- 3c. Please provide the following:

  • Total number of eligible non-HCE’s - Any non-highly compensated employee who is eligible to participate in the POP 
  • Total number of all non-HCE’s - Any non-highly compensated employee 
  • Number of eligible HCE’s - Any highly compensated employee who is eligible to participate in the POP 
  • Total number of all HCE’s - Any highly compensated employee

4. Do all participants have the same opportunity to select benefits under the plan?

This is referring to all eligible employees.  Are all eligible employees able to select the same pre-tax benefits, under the same restrictions (if any).  For example, if a plan allows managers to enter the pre-tax plan within 30 days of hire, but non-managers must wait 60 days, the answer to this question would have to be ‘No’. 

5. Can you answer yes to either of these questions with regard to employer contributions toward major medical insurance coverage (i.e., general health insurance) offered under the plan? 

5a. Are the employer contributions the same as or more than the cost of major medical coverage provided to similarly situated HCEs (e.g., participants at the same benefit level)?

Example: For XYZ Inc., the cost of self-only (family) major medical insurance for self-only (family) HCEs is $500 ($1,000) a month. XYZ Inc contributes $500 a month to the major medical coverage of all participants with self-only coverage and $1,000 a month for all participants with family coverage. XYZ could answer “yes” to this question.

- 5b. Are employer contributions to participants equal to or greater than 75% of the cost of the most expensive major medical coverage offered under the plan to similarly situated participants (e.g., participants at the same benefit level)?

Example: For XYZ Inc., the cost of the most expensive self-only (family) major medical insurance for self-only (family) HCEs is $1,000 ($2,000) a month. XYZ Inc contributes $750 a month to the major medical coverage of all participants with self-only coverage and $1,500 a month for all participants with family coverage. Because these contributions are at least 75% of the cost of the most expensive coverage, XYZ could answer “yes” to this question.

- 5c. To try and summarize further - if the employer is providing a portion of the medical insurance premium, is the amount being provided by the employer (to all employees) equal to (or greater than) 100% of the cost of the medical coverage provided to the HCEs or is it equal to (or greater than) 75% of the cost of the most expensive coverage being offered?

This includes all lines of coverage (single, family, employee + dependent, etc.).

Note: Most plans will have to answer ‘No’ here.  Answering ‘No’ here will not fail the test. If the employer is providing no portion of the medical premiums, you would also answer ‘No’.

- 5d. Are benefits disproportionately enjoyed by HCEs:

  • Total annual gross compensation for all ELIGIBLE HCEs: - Total salary (including any bonuses) for highly compensated employees who are eligible to participate in Section 125.
  • Total annual gross compensation for all ELIGIBLE non-HCEs :  - Total salary (including any bonuses) for non-highly compensated employees who are eligible to participate in Section 123.
  • Total annual cost of the benefits enjoyed under the plan by all PARTICIPATING HCEs: - Total cost of the premiums for all benefits held by highly compensated employees on a pre-tax basis.
  • Total annual cost of the benefits enjoyed under the plan by all PARTICIPATING non-HCEs: - Total cost of the premiums for all benefits held by non-highly compensated employees on a pre-tax basis.

6. Are employer contributions made to participants on a uniform basis without regard to the compensation of participants?

If the employer is providing any portion of the premiums for benefits that are pre-taxed, it should be done on a uniform basis.  To provide more towards the premiums of employees who could be considered highly compensated would be discriminatory according to Section 125.

Note: If the employer is providing no portion of any of the pre-tax benefits, this may be answered ‘Yes’, as that is still uniform.

7. Please provide the following:

  • Total cost of all benefits for all employees under the plan: - Similar to Question #5, this would be the total cost for all premiums being utilized on a pre-tax basis by all employees.
  • Total cost of all benefits for key employees ONLY under the plan: - This would be the total cost for all premiums being utilized on a pre-tax basis by only the employees who qualify as ‘Key Employees’.
Note: The total pre-tax premium usage by ‘Key Employees’ should be no greater than 25% of the total pre-tax premium usage.
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