The "Low Down" on NDT

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

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