POP Nondiscrimination FAQs
To ensure a Premium Only Plan (POP) benefits all eligible employees fairly, conducting annual nondiscrimination testing is required. This process verifies that the plan meets IRS requirements and avoids favoring highly compensated employees.
What is a Highly Compensated Employee?
Highly compensated individual means an individual who is:
- (i) an officer;
- (ii) a shareholder owning more than 5% of the voting power or value of all classes of stock;
- (iii) highly compensated, $120,000 in 2016 or
- (iv) a spouse or dependent of an individual described in (i) (ii) or (iii).
Note - there is no authority on the meaning of highly compensated, as used in (iii). Use Code Section 414 (q)(1)(B) as guidance
What is a Key Employee?
The total amount of benefits provided to Key Employees must be less than 25% of the total amount of benefits provided to all employees. Key employee means
- (i) an officer having an annual compensation greater than $170,000 in 2016;
- (ii) a 5% owner; or
- (iii) a 1% owner with annual compensation greater than $150,000.
What is the Eligibility and Reasonable Classification Test?
Eligibility Benefits provided for participants who are highly compensated individuals should be provided proportionally for all other participants. For purposes of the Eligibility Test, an employee refers to all common law employees of the employer, including those who work less than a full-time schedule. If you have part-time employees that are not eligible to participate in your POP, select "NO". Reasonable Classification "Reasonable Classification" generally means that there is some reasonable rationale why an employer is including or excluding employees in the plan. For Instance, classification based on position may be permissible, but classification based on a random basis is not permissible.
Why do we have to test our Section 125 Health Plan?
If you have a Flexible Spending Account (FSA) or a Premium Only Plan (POP), the IRS requires you to submit to non-discrimination testing once a year. The reason for nondiscrimination testing is to prevent Key and Highly Compensated employees from taking advantage of the benefits that these plans provide for employers and employees alike.
What information needs to be completed?
Tab 1: Sect 125 Data - You will need to list all employees that have been employed during the plan year that is being tested and complete all columns on this page, as they apply to your company and employees.
Tab 2: Subjective Questions - You will need to Answer the Questions Starting with what year is being tested. Please Complete all following Yes/No Questions as they apply to your company.
*Please Note: There is no action required in the Definitions Section of this Tab. This is only listed as helpful information to be used as a reference.
Where can I find more detailed information for what is needed on Tab 1?
Please reference Tab 3: Data Explanations. - This Tab will provide a detailed breakdown of all information needed for each column on Tab 1: Sect 125 Data.
Tab 4: Answer Types - This tab will provide you with the accepted format for answers to be entered throughout this spreadsheet.
*Please Note: DO NOT change, add, or remove any headers, Columns, or other forms of formatting on any tab of this spreadsheet or the testing software will not be able to accurately read your spreadsheet and may result in a failure.