cafeteria plan
Cafeteria Plans allow employees to elect “qualified benefits” offered by their employer, and those qualified benefits may be paid for with pre-tax contributions by employees. Employees generally save on state income taxes, federal income taxes, and FICA taxes (i.e., Medicare and Social Security taxes). Employers also reduce their FICA taxes when a Cafeteria Plan is in place, so it is usually a win-win for all parties.
The Internal Revenue Service (IRS) requires employers who sponsor a Cafeteria Plan (sometimes called a Section 125 Plan or Premium-only-Plan) to conduct certain non-discrimination tests. Because a Cafeteria Plan provides tax-free benefits, the IRS has rules in place so that tax-free benefits are not provided or elected more favorably to employees who are considered key employees. This is referred to as the Key Employee Concentration Non-Discrimination Test.
Cafeteria Plans, sometimes called Premium-only-Plans (POPs) or Section 125 Plans, allow employees to pay for health and welfare benefits with pre-tax contributions. Because contributions are tax-deductible, the Internal Revenue Service (IRS) has a set of rules in place to ensure highly compensated employees are not receiving or electing benefits more favorably than non-highly compensated employees. This is referred to as the Contributions and Benefits Non-Discrimination Test.
Cafeteria Plans, sometimes called Premium-only-Plans (POPs) or Section 125 Plans, allow employees to pay for health and welfare benefits with pre-tax contributions. Because contributions are tax-deductible, the Internal Revenue Service (IRS) has a set of rules in place to ensure highly compensated employees are not eligible for benefits more favorably than non-highly compensated employees. This is referred to as the Eligibility Non-Discrimination Test.
The Internal Revenue Service (IRS) recently published Notice 2022-41 in response to the fixes made to the “family glitch
Making Plan Changes During the COVID-19 Pandemic
Needless to say, these last several weeks have created challenging times for a significant number of employers. Stay-at-home orders and other impacts from the COVID-19 (Coronavirus) pandemic have put many employers in a position where they must make sudden health plan and benefit changes.
Many insurance carriers are offering up a limited time special enrollment period due to the COVID-19 (Coronavirus) pandemic. Call it a midyear open enrollment period if you will. No qualifying event is necessary to enroll in the group health plan. Many insurance carriers (at the discretion of the employer) are allowing employees to join the group health plan if they waived coverage during the employer’s typical open enrollment period. This comes as good news for many employees.
Simple Cafeteria Plans were created by the Affordable Care Act (ACA) and have been an option for eligible employers since 2011. This type of plan provides eligible employers with an automatic pass for many of the non-discrimination tests that apply to Cafeteria Plans and its component benefits. This is the primary difference between a Simple Cafeteria Plan and other more traditional Cafeteria Plans.
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