Nondiscrimnation tests in cafeteria plans

[KnightsPG]

Grasp Notecard #287

Contributions and Benefit Test - one of two must be met...ER contributions are 100% of plan in which highly compensated participants are enrolled or ER contributions are 75% of the cost of the most expensive plan.

I don't understand how the first part of this test is protecting against discrimination. By ensuring that the employer picks up 100% of the cost of the plan for highly compensated employees, isn't this discrimination in favor of key employees?

[The Head Detective]

But other employees can get it for free too. So there's not some super cool exlcusive plan out there that only the key employees can afford.

[saahu5]

It's important to note that HCE <> Key employee

For example, the wife of the owner of the company only makes $40,000 a year. She would be considered a key employee from ownership rules, but not a highly compensated employee.


If the ER contributions are 100%, then the HCEs are not receiving a higher benefit than non-HCEs.