Simple Cafeteria Plan Continuing Education

Course #74968

Introduction

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.

Requirements

Written Plan Document and SPD

Only Employees & retirees eligible to participate

Plans cannot discriminate in plan design or in benefit in favor of owners, officers and/or highly compensated employees

Authorization

Internal Revenue Code Section 125

Simple Cafeteria Plans – The Beginning

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.

Who can sponsor a Simple Cafeteria Plan

General Rule – average of 100 or fewer employees during either of 2 preceding years.

Year defined as the employer’s Plan Year

Who can sponsor a Simple Cafeteria Plan

Leased employees are counted when determining if an employer is eligible

Code is silent on whether to count part-time, temporary or seasonal employees.

Who can sponsor a Simple Cafeteria Plan

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.

Who can sponsor a Simple Cafeteria Plan

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.

Required Contributions

Employers that sponsor a Simple Cafeteria Plan are required to make certain contributions to the plan to provide benefit for “qualified employees”.

Required Contributions

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

Employer Contributions must be either:

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).

Employers may make contributions in excess of those required.

Required Contributions

The same contribution method must be used for all employees.

Amounts must be available toward the cost of any qualified benefit offered under the plan.

A cash-out option does not have to be offered

Required Contributions

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.

Eligibility and Participation Requirements

All employees with at least 1,000 hours of service in the preceding plan year must be eligible to participate

Each employee who is eligible to participate must be able to elect any benefit available under the plan

Eligibility and Participation Requirements

Ineligible to participate: Self-employed

individuals Partners in a partnership More than 2% S-

Corporation shareholder and Section318 attribution relatives.

Eligibility and Participation Requirements

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

Which non-discrimination requirements are covered by the Safe Harbor:

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.

Which non-discrimination requirements are covered by the Safe Harbor:

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

How a simple Cafeteria Plan can help employers:

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

Avoids the responsibility of performing all 9 discrimination tests

How does the employer implement a Simple Cafeteria Plan?

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?

How does the employer implement a Simple Cafeteria Plan?

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

Adopt or amend the plan Communicate the plan to employees

Unauthorized Entities

An Unauthorized Entity is an insurance company that is not licensed by the Florida Office of Insurance Regulation. Agents and Brokers have responsibility for conducting reasonable research to ensure they are not writing policies or placing business with Unauthorized Entities. Lack of careful screening can result in significant financial loss to Florida residents due to unpaid claims and/or theft of premiums. Under Florida law Insurance Agents and Brokers can be held liable for unpaid claims. Agents may be held liable when representing these Unauthorized Entities. It is the Agents and Brokers responsibility to give fair and accurate information regarding the companies they represent. Any question about the authorized status of a company can be checked by calling the Florida Department of Financial Services at 1-877-693-5236 in Florida or 1-850-413-3089 outside the state of Florida. We urge all agents and brokers to adhere to this admonition. The state of Florida has taken a very strong position on the issue of Unauthorized Entities.