Transcript Simple Cafeteria Plan Continuing Education

Course #74968
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Cafeteria Plan Defined: Plan sponsored by the
employer for the benefit of the employees which
gives the employee a choice between pretax
benefits and taxable income.
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Written Plan Document and SPD
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Only Employees & retirees eligible to
participate
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Plans cannot discriminate in plan design or in
benefit in favor of owners, officers and/or
highly compensated employees
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Internal Revenue Code Section 125
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Authorized under the PPCAA
First effective January 2011
Purpose – plan treated as meeting the
nondiscrimination rules for cafeteria plans
and the component benefits except for
adoption assistance.
Available only for employers with an average
of 100 or fewer employees during either of
the 2 preceding years.
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General Rule – average of 100 or fewer
employees during either of 2 preceding years.
Year defined as the employer’s Plan Year
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Leased employees are counted when
determining if an employer is eligible
Code is silent on whether to count part-time,
temporary or seasonal employees.
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New Employer Rule – Average number of
employees the employer expects to employ
this year.
Special rule for growing employers – if the
plan is already established, the employer may
continue the Simple Cafeteria Plan until the
year following the first year that the
employer employs an average of 200 or more
employees on business days.
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Any predecessor employer is included for
eligibility determination processes.
If multiple businesses are treated as a single
employer under Code Sections 52(a) &(b), all
employees of
all of the
businesses
must be combined.
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Employers that sponsor a
Simple Cafeteria Plan are
required to make certain
contributions to the plan
to provide benefit for
“qualified employees”.
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Contributions must be made for each
qualified employee, regardless of whether
the employee makes any salary reduction
under the plan.
Contributions must be “true” employer
contributions in addition to any Salary
reduction made by the employee.
A uniform percentage – but not less than 2%
of the employee’s compensation for the plan
year (non-elective method), or
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An amount that equals or exceeds the lesser
of:
 6% of the employee’s compensation for the plan
year, or
 Twice the employee’s salary reduction
contributions (matching contributions method).
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Employers may make contributions in excess
of those required.
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The same contribution method must be used
for all employees.
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Amounts must be available toward the cost
of any qualified benefit offered under the
plan.
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A cash-out option does not have to be
offered
Matching contributions cannot be made at a
higher rate for HCE or key EES than for an
employee who is not HCE or Key
 Plan document must require employers to make
these contributions
 Employer contributions must be clearly
explained in the SPD and all enrollment
materials.
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All employees with at least 1,000 hours of
service in the preceding plan year must be
eligible to participate
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Each employee who is
eligible to participate
must be able to elect
any benefit available
under the plan
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Ineligible to participate:
 Self-employed individuals
 Partners in a partnership
 More than 2% S-Corporation
shareholder and Section318
attribution relatives.
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Employers may elect to exclude:
 Employees who have not attained age 21 before
the start of the plan year.
 Employees who have less than 1 year of service
with the employer – or a shorter period of service
selected by the employer.
 Employees covered by a collective bargaining
agreement
 Certain non-resident aliens working outside the US
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Code Section 105(h) for self-insured medical
plans including health FSA eligibility &
benefit tests.
Code Section 129 for DCAP eligibility,
contributions & benefits, more than 5%
owner’s concentration test, & 55% average
benefit test.
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Code 79(d) – nondiscrimination rules for
group term life insurance (eligibility & benefit
tests)
Unclear whether safe harbor extends to the
provisions of health care reform for Section
105(h)(2) testing
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Allows them to offer a cafeteria plan when
they would have problems meeting
applicable nondiscrimination requirement:
 Key employee 25% concentration
 DCAP 55% average benefit test
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Avoids the responsibility of performing all 9
discrimination tests
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Decide whether to establish a
Simple Cafeteria Plan
 Is the employer eligible?
 Is the employer willing
and able to make the
required contributions?
 Is the employer likely to
have difficulty passing the
nondiscrimination tests?
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Decide on Plan Terms
 What contribution method will the employer use
– nonelective or matching?
 Will contributions be the minimum amount or will
there be additional contributions?
 Who will be eligible – only those required to be
eligible, or other employees as well
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Adopt or amend the plan
Communicate the plan to employees
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brokers to adhere to this admonition. The state of Florida has taken a very strong position on the issue of
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