In the first article of this Health FSA series, we covered how to determine if an employer’s Health FSA is discriminatory. In the second and final article of this series, we’ll cover what employers should consider if their Health FSA may be discriminatory and what steps to take for correction.

Assumptions

The analysis of whether a Health FSA is discriminatory varies depending on whether the Health FSA accepts pre-tax salary contributions from employees. Health FSAs funded with employee pre-tax salary contributions must also satisfy the Section 125 plan nondiscrimination rules which vary from those in 105(h).

For purposes of this article, we will discuss the nondiscrimination requirements as applied to Health FSAs funded through participants’ pre-tax salary contributions BUT we’ll assume these Section 125 Health FSAs can pass the non-discrimination requirements applicable under Section 125 of the Internal Revenue Code. Thus, our analysis is limited to the applicability of Section 105(h) requirements to Section 125 Health FSAs that have successfully passed the Section 125 nondiscrimination requirements.

The following is general information about Health FSAs and is intended for educational purposes only and does not constitute legal advice.

What do I do if I am advised by the testing service that my Health FSA may be discriminatory as to eligibility?

A Health FSA may still be found as passing the Post-TRA Fair Cross Section Testif its concentration percentage of non-highly...

Read Full Story: https://www.dentons.com/insights/newsletters/2022/june/30/dentons-davis-brown...