The
Definative Resource for the Cafeteria Plan
The
complete guide for IRS Section 125 Cafeteria Plan
information and affordable resources:
What is
a Cafeteria Plan
A Cafeteria Plan
is the portion of IRS Code that allow employees
to pre-tax or avoid income taxes altogether on
insurance premium including supplemental insurance,
out-of-pocket medical expenses, and dependent
child care expenses.
Why Do They Call Them
Cafeteria Plans
The term Cafeteria
Plan came about as employers would allow their
employees to have a certain budget to spend for
any of the items available through the Cafeteria
Plan.
Cafeteria
Plan Example:
The employer gives
every employee a $5,000 annual Cafeteria Plan
budget. The Section 125 Cafeteria Plan has the
following list of benefits the employee can choose
to spend that $5,000 on: health insurance;
dental insurance; vision plan; accident insurance;
term life insurance; cancer policy, hospital indemnity
insurance; out-of-pocket medical expenses through
a Health Flexible Spending Account or FSA; and
Dependent Care Expenses through a Dependent FSA.
Employees could pick and choose the benefits they
liked the most similar to picking food items you
like at a cafeteria.
Cafeteria Plan Funding
Cafeteria Plans can be funded either by the employer
or by the employee. It's much more common today
to see the employee funding doing the Cafeteria
Plan funding rather than the employer.
Cafeteria Plan
Components
Today Cafaeteria Plan can mean many different
types of Section 125 plans. Technically the full
Cafeteria Plan is made up of three components
or modules that include: the Section 125 Premium
Only Plan; the Health FSA for out-of-pocket medical
expenses; and Dependent Care FSA for child care
expenses.
Why The Cafeteria Plan
is Popular
The Cafeteria Plan is more popular today because
the cost of health insurance has become so high
many employers are pushing more of the premium
expense as well as higher deductible onto employees
who have to shoulder this new burden. The Cafeteria
Plan helps the employee by reducing their income
tax liability on the money they use to pay these
expenses.
How To
Start A Cafeteria Plan
All that's needed to start a Cafeteria Plan is
a formal Plan Document and Summary Plan Description.
Core Documents is the primary source for Cafeteria
Plan Documents to small employers throughout the
United States. A full Cafeteria Plan only cost
$249 + S$H to establish.
No Cafeteria
Plan Annual Reporting Requirements
The Cafeteria Plan is no longer subject to the
annual 5500 Cafeteria Plan Reporting. Only Health
FSA plans with more than 100 participants are
required to file the 5500 report. Manay CPAs and
Accountants discourage their clients from setting
up Cafeteria Plans because of they believe this
Cafeteria Plan reporting requirement is still
in place. If your Cafeteria Plan has less than
100 participants in the Health FSA module only
then you have no annual reporting requirements
at all with a Cafeteria Plan.
Cafeteria
Plan Non-Discrimination Testing
Section 125 of the Code does require Cafeteria
Plan sponsors to conduct annual testing to guard
against discrimiantion. The IRS simply doesn't
want Cafeteria Plans to be established solely
for the benefit of the highly compensated and
key employees. Basically not more than 25% of
Cafeteria Plan benefits should be utilized by
the highly compensated and key employees of the
group. Regarding the Health FSA module of the
Cafeteria Plan, at least 70% of all eligible employees
must participate in the plan. Core Documents provides
their clients with easy fill-in-the-blanks do-it-yourself
forms to accomplish annual Cafeteria Plan testing.
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