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What is compliance testing for LPFSAs

What is Compliance Testing for LPFSAs?

Compliance testing (also known as non-discrimination testing) ensures that a company's Health Care or Dependent Care FSA treat all employees equally, and do not favor key or highly compensated employees (HCEs).

Zenefits FSAs are automatically compliant with Section 105 non-discrimination regulations.

However, Zenefits does not administer the following Section 125 compliance tests. Please consult a legal advisor with any questions or concerns regarding these tests.


Health Care FSA Sec 125 Compliance Testing

Three tests are used to determine the compliance of a Health Care FSA:

  • Eligibility Test
    - The number of non-HCEs that participate must be at least as much as the number of HCEs.
  • Benefits Test
    - The required employee contribution must be identical for each benefit level; 
    - The maximum benefit level that can be elected cannot vary based on percent of compensation, age or years of service
    - The same type of benefits (i.e., health care expenses) provided to highly-compensated employees must be provided to all other participants; and
    - Disparate waiting periods may not be imposed.
  • Key Employee Concentration Test
    - The value of non-taxable benefits selected by Key Employees cannot exceed 25% of the total non-taxable benefits selected by all participants under the plan.
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