Health FSA Tests

1. Health FSA Eligibility Test 
Under the Health FSA Eligibility Test, a plan may not discriminate in favor of HCIs as to eligibility to participate. A plan may satisfy any of these three sub-tests in order to pass:

• Subtest #1: The plan benefits 70% of all non-excludable employees.
• Subtest #2: The plan benefits 80% or more of all non-excludable employees who are eligible to benefit, if 70% or more of all non-excludable employees are eligible to benefit under the plan.
• Subtest #3: Nondiscriminatory Classification Test. Safe Harbor and Unsafe Harbor Percentage Tests.

In running the Eligibility Test for health FSA, an employer may exclude the following employees from consideration.

• Employees who have not completed three years of service;
• Employees who are not attained age 25;
• Part-time or seasonal employees;
• Nonresident aliens with no U.S source income

2. Health FSA Benefits Test
Under the Health FSA Benefits Test, a plan may not discriminate in favor of HCIs and all participants should be benefiting from the plan in the same way as HCIs.

The Benefits Test consists of two requirements that must be met in order for the Health FSA to pass.

1. First Requirement: No Discrimination on the Face of the Plan
2. Second Requirement: No Discrimination in Operation

In order for a Health FSA to be nondiscriminatory on its face, it must satisfy the following conditions as a matter of plan design and in operation.

• The required employee contributions must be identical for each benefit level;
• The maximum benefit level that can be elected cannot vary based on percentage of compensation, age, or years of service;
• The same type of benefits (e.g., medical expenses) provided to HCIs must be provided to all other participants; and
• Disparate waiting periods cannot be imposed.

If plan satisfies these conditions then the plan passes the Benefits Test.