Company 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.
Zenefits charges companies a base annual servicing fee of $150 for the plan year and a monthly fee per employee enrolled in a LPFSA and/or Dependent Care FSA. The two contract options are: Annual ($4/employee per month, prepaid for the year) or Month-to-Month ($5/employee per month, monthly payments). Companies who are currently enrolled in LPFSA will be able to choose either contract option upon renewal of their current plan.

Annual Contract Details
  • Annual Cost: $150
  • Monthly Cost: $4 per employee, with a five employee minimum
  • The 12 months (base and employee cost) are paid in advance at the start of the contract. This plan is based on a calendar year.
  • The total of the plan year fee and the monthly minimum will be debited from the company account on the first business day after the contract is signed.
  • If additional employees enroll in the middle of the plan-year, Zenefits will prorate the cost of the extra employees for the number of months from the employees' LPFSA start date(s) through to the end of the plan year.
Month-to-month Contract Details
  • Annual Cost: $150
  • Monthly cost: $5 per employee, with a five employee minimum
  • The $150 fee and first month's payment is charged on the first business day after the contract is signed.
  • Monthly payments are debited on the first of each month. If additional employees enroll, they will be added to the next monthly payment.
  • For example, the cost for a company with 10 LPFSA enrollees using the Month-to-month contract throughout the duration of their plan year would be: 1st month of the plan year (even for a partial plan year): $150 annual fee + $50 ($5 per employee).
  • Each month for the remainder of the plan year: $50.
  • Note the servicing fee for both contracts is based on the plan year for the LPFSA (defined during initial setup). For contracts that don't begin and end on the same dates as the plan year, Zenefits will charge the servicing fee twice: when the contract starts, and at the start of the plan year.
  • For example, assume an LPFSA with a plan year is Jan 1 - Dec 31st, and a contract that begins on October 1st of one year and ends on 9 /30 of the next. Zenefits will charge the service fee on October 1st (when the contract starts) and again on Jan 1st.

Non-discrimination testing (also known as compliance testing) examines the contributions of Key and Highly-Compensated Employees to determine whether all employees are treated equally by a company's FSA plan.
  • This article is for informational purposes only and not for the purpose of providing tax advice. Zenefits does not provide tax advice. Please consult a tax professional to determine an employee's status in the context of non-discrimination testing.
Designating an employee as a Highly-Compensated Employee in Zenefits does not remove the LPFSA card from their dashboards.

Since employer contributions are set at the company level during plan setup, employees may elect a lower LPFSA contribution than their employer. If the employer's contribution is greater than the employee's contribution, and the employee contributes:
  • more than $500, the employer can only match the lower employee contribution.
  • less than $500, the employer can contribute up to $500.
Employer contribution amounts are set during company plan enrollment, and cannot be changed until the end of the plan year.
Non-elective employer contributions to the LPFSA, such as an employer match, seed contributions or flex credits, generally do not count toward the limit. 
Let's consider some examples:

Employee ContributionEmployer ContributionCombined Amount Applied to LPFSA
$1500$1500 (match)$3000
$1000$1500 (not a match; only $1000 applies)$2000
$1000$500 (less than employee)$1500
$300$500 (not a match, but acceptable)$800
$0$500$500

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