Dependent Care Eligibility Test

Under Subtest #2, a classification is not discriminatory for a plan year if, and only if, the group of employees included in the classification benefiting under the plan satisfies either a “safe harbor percentage test” or an “unsafe harbor percentage” test for the plan year. These tests are described in the subsections below.

The Safe Harbor Test compares the percentage of non-excludable non-highly compensated employees who are benefiting under the Plan with the percentage of non-excludable highly compensated employees who are benefiting under the plan.

The following steps must be taken to determine if the Safe Harbor Percentage Test is satisfied:

1. Determine the plan’s Ratio Percentage. A plan’s Ratio Percentage means the percentage (rounded to the nearest hundredth of a percentage point) determined by dividing the percentage of non-HCIs who benefit under the plan by the percentage of HCIs who benefit under the plan. The Ratio Percentage can be determined as follows:

2. Determine the Plan’s Non-HCI Concentration Percentage. A plan’s Non-HCI Concentration Percentage means the percentage of all employees of the employer who are non-HCIs. Employees who can be excluded are not taken into account. To determine the Non-HCI Concentration Percentage, calculate the following:

3. Once the Plan’s Non-HCI Concentration Percentage has been determined, the Safe Harbor and Unsafe Harbor Percentage is identified by using the Nondiscriminatory Classification Table. Find the applicable Non-HCI Concentration Percentage in the far left column, and match that with the corresponding Safe Harbor Percentage in the middle column. If the Plan’s ratio percentage is equal to or greater than the safe harbor percentage, then the plan’s employee classification meets the Safe Harbor and is deemed nondiscriminatory.

If the plan fails the Safe Harbor Percentage Test, then the plan still may pass the Unsafe Harbor Percentage Test component of the Facts and Circumstances Test. To pass the Unsafe Harbor Percentage component of this test, the plan’s ratio percentage must be greater than or equal to the corresponding Unsafe Harbor Percentage. As described above, the Unsafe Harbor Percentage is determined by calculating the Non-HCI Concentration Percentage and finding the corresponding Unsafe Harbor Percentage on the Nondiscriminatory Classification Table.

Highly Compensated Individual (HCI):

• An Officer during preceding plan year (or current plan year in the case of the first year of employment)
• A more-than 5% owner of the employer during the preceding or current plan year
• An employee with annual compensation more than the “Highly Compensated Employee” specified dollar threshold for the preceding year (or current plan year in the case of the first year of employment)
• For 2022, an employee with compensation over $130,000 in 2021
• Spouse or dependent of any of the above