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Who should perform mid-year non-discrimination testing (pre-testing)?

Employers who anticipate issues with passing non-discrimination testing in their health and welfare plans may want to perform a mid-year test. This may be the case for an employer who previously failed testing or who has implemented new employee classes for the first time and has never tested the plans under the new eligibility rules.

Is mid-year NDT required?

No, mid-year testing is not legally required. The Internal Revenue Service (IRS) requires annual non-discrimination testing (NDT) to ensure that health plans do not discriminate in favor of highly compensated individuals, highly compensated employees, or key employees. For more information on which plans need to be tested and when, read our article, “Health and Welfare Plan Non-Discrimination Testing- Are Your Plans on Track?

The annual test should be done prior to the end of the plan year; however, some vendors also offer pre-testing that can be done at the beginning and/or middle of the plan year if problems passing the test are anticipated.

Why should I perform mid-year NDT?

The mid-year testing can help determine if corrective steps should be taken to ensure that an employer passes NDT at the end of the year. It may be difficult to correct any failures discovered at the end of the plan year and a pre-test can often help identify plan issues ahead of time.

The information and materials on this blog are provided for informational purposes only and are not intended to constitute legal or tax advice. Information provided in this blog may not reflect the most current legal developments and may vary by jurisdiction. The content on this blog is for general informational purposes only and does not apply to any particular facts or circumstances. The use of this blog does not in any way establish an attorney-client relationship, nor should any such relationship be implied, and the contents do not constitute legal or tax advice. If you require legal or tax advice, please consult with a licensed attorney or tax professional in your jurisdiction. The contributing authors expressly disclaim all liability to any persons or entities with respect to any action or inaction based on the contents of this blog.

Emerald Law– Emerald is a Client Compliance Consultant for Sequoia, where she works with our clients to optimize and streamline benefits compliance. In her free time, Emerald enjoys stand-up comedy, live music and writing non-fiction.