Notice for Highly Compensated Employees with a Dependent Day Care FSA

The Internal Revenue Code (IRC) allows pretax contributions to FSAs as long as the benefit does not favor highly compensated employees (HCEs). You are considered "highly compensated" if your gross earnings are above the annual amount set by the Internal Revenue Service (see the IRS website for details).

In accordance with IRC regulations, Vanderbilt's Office of Benefits Administration examines Dependent Day Care FSA elections each year to ensure that the benefit does not disproportionately benefit HCEs and that the Plan remains compliant. If the benefit is found to "discriminate" against non-highly compensated employees, Vanderbilt University will reduce contributions made by HCEs to a level that enables compliance with the IRC. If the Dependent Day Care FSA fails the test for the year, HCEs will be taxed on the pretax deductions contributed to their Dependent Day Care FSA during that calendar year. Non-highly compensated employees are not affected by this rule.