BASE^® Blog

When it comes to offering health benefits to employees, performing Non-Discrimination Testing (NDT) of those health benefits is very important.  Employers proving that their health benefits are compliant is not just something the IRS suggests but requires.

Non-Discrimination Testing was set in place by the IRS to ensure that certain health and welfare benefit plans do not discriminate in favor of highly compensated or key employees in respect to plan eligibility, pre-tax contributions, and benefits. 

The BASE® NDT is a test that employers can run that will demonstrate whether or not the health benefits that are provided to their employees are being provided fairly, ensuring that all employees will receive fair and equal health benefits.   

What is required by the IRS?

The IRS requires NDT for employers who provide health benefits, such as a Health Reimbursement Arrangement (HRA) or Section 125 Plans such as Flexible Spending Account (FSA). 

Why does testing matter?

The IRS wants to ensure that there is not any discrimination between highly compensated employees (HCEs)/key employees and other employees at the same business.  The test is meant to demonstrate fairness when it comes to providing health benefits among all levels of employees.  If a business is found to have failed to comply, the employer is at risk to pay taxes on the benefits and IRS penalties as well. 

When to test?

The test should be performed before the last day of the current plan year and include all employees that were employed on any given day during that plan year.  It is also highly recommended that an employer tests once early in the year or in the middle of the year, in case additional steps are required to ensure compliance, they will have time to do so. 

How to make testing easier?

To make the tests easier on businesses, employers look to a third-party administration, like BASE®, to help.  Many third-party administrations of health benefits do NOT offer this, but BASE® does. 

What happens if failure occurs?

If the report comes back of a failed result, the recommendation will be to follow the necessary steps to bring the plan into passing status. 

Here at BASE®, we know that testing can be confusing and challenging, but BASE® is here to help employers ensure their compliance on their Section 125 Plans and HRAs and maintain their tax-favored status. 

For more information on the BASE® Non-Discrimination Testing, contact BASE® at 888.386.9680 or visit www.BASEonline.com

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Many know that using pre-tax dollars to pay for health care premiums is a well-known practice for businesses who offer a group health plan, but many are unaware that to take the 125 deduction, employers must set up a compliant Section 125 Premium Only Plan (POP).  Establishing this type of plan can provide health care savings for the employer and the employee.

The Premium Only Plan (POP) is an employer-sponsored benefits plan that allows employees to voluntarily deduct a portion of their pay towards tax-free benefits.  A compliant POP is a simple payroll change that could help employees save 15-40% while employers save at least 7.65% on each employee-deducted dollar.  

The BASE® POP is the simplest form of the 125 Cafeteria Plans.  It is an IRS-approved change in an employer’s payroll process, allowing for the employee to pay for their share of their premiums, such as health insurance on a pre-tax basis.  

It may not seem like much to have an employee elect to have their premiums paid on a pre-tax basis, but according to the Kaiser Family Foundation Health Benefits Survey 2019, the average annual US employee contribution is $1,242 for single health coverage and $6,015 for family health coverage. 

Check out the example below to see how much could be saved with this simple change in payroll.

Assuming a 20% tax rate, a single coverage employee could save roughly $248 while a family coverage employee could save over $1,200 each year.  The employer could save a minimum of $95 for single coverage and $460 for family coverage per year, per employee, in taxes.  Now, if an employer had 5 single coverage and 20 family coverage, an employer could save around $475 to $9,202.95 a year. 

Having a compliant Premium Only Plan is one of the best and simple ways for employers to increase their employees’ satisfaction with their health benefits and save money at the same time. 

For more information on the BASE® Premium Only Plan (POP), contact BASE® at 888.386.9680 or visit www.BASEonline.com.

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