| How Does It Work?
SECTION 125 CAFETERIA PLAN - AN INTRODUCTION
A cafeteria plan is a "qualified" employee benefit program governed under
section 125 of the Internal Revenue Code. The plan allows an employee's
contributions to certain health and welfare benefits to lower their annual
taxable income. Qualified pre-tax benefits include group term life
insurance (up to $50,000), group accident and sickness insurance, and
contributions to reimbursement accounts for uninsured health care expenses
and/or day care expenses for qualified IRS dependents. A cafeteria plan
can be as flexible or as restrictive as the employer determines.
Amounts not included in the gross income of cafeteria plan participants
are excludable from wages subject to tax under the Federal Insurance
Contribution Act (FICA), under the Federal Unemployment Tax Act (FUTA),
and some local taxes. Of the dollars employees pay on a pre-tax basis,
employers can estimate a reduction of payroll taxes of eight to ten
percent. For example: if an employee/participant, in the State of Oregon,
is contributing $400.00 per month to a pre-tax dependent care assistance
reimbursement account, the employee will save a minimum of 126.60 per
month in taxes, the employer will save $30.60, per month in matching FICA
In accordance with the Internal Revenue Code, sole proprietors, partners
in a partnership and shareholders of a subchapter "S" corporation cannot
participate in a cafeteria plan; however, their employees, if eligible,
can participate. There is no minimum employee participation requirement.
Based on the dynamics of the employer group, a cafeteria plan can be very
beneficial to both employees and employers.
As a "qualified" plan, a discrimination test must be met based on the
elections of the participants. A cafeteria plan discriminates as to
eligibility to participate if the qualified benefits provided to key
employees under the plan exceed 25 percent of the aggregate of such
benefits provided for all employees under the plan.
A cafeteria plan must also meet the following requirements:
· The plan must be in writing,
· Employee's rights under the plan must be legally enforceable.
· Reasonable notification of plan benefits must be provided to employees.
· The plan must be maintained for the exclusive benefit of employees.
· The plan must be established with the intention of maintaining it to an
Employee contributions to a dependent care assistance reimbursement
account and/or medical expense reimbursement account which are not used to
fund those benefits in the current plan year will be forfeited and become
the property of the employer. The employer uses the forfeited funds to
either pay the next plan year's administrative fees or return the funds to
the prior plan year participants based on the percentage of the
participants' elected amount.
| What Is My Cost As An Employer?
First year $1,195.00
Includes plan set-up (to a maximum of 5 divisions), Participant Set-up, Client Administration, manual, Enrollment Kit for all eligible employees. One enrollment video, Confirmation Kits for all participants, Quarterly Newsletter, Checks Direct deposit of claims reimbursement. Non-discrimination testing (including pre-tax premium integration) Model Plan Document SPD.
RENEWAL PLAN YEAR $595.00
Includes plan set-up (to a maximum of 5 divisions), Participant Set-up, Client Administration, manual, Enrollment Kit for all eligible employees. One enrollment video, Confirmation Kits for all participants, Quarterly Newsletter, Checks Direct deposit of claims reimbursement. Non-discrimination testing (including pre-tax premium integration) Model Plan Document SPD updates if required by law.
MONTHLY ADMINISTRATION FEE $5.50
Fee per FSA plan participant: 12, 24, or 26 reimbursement/year $125.00 monthly minimum cost.
Administration fees are applicable to all plan participants with account balances greater then zero during the plan period.
VALUE ADDED SERVICES
Form 5500 Preparation: $150.00
Additional Enrollment kits for updates and new hire: $1.95 per kit
Additional Video tape: $24.95 each
Enrollment Communication Materials
Payroll Stuffers: $5.00 Per packet of 50 stuffers
FSA Detail Brochure: $12.50 per packet of 50 brochures
Enrollment Poster; $1.75 each
Currently legislation is as such:
If the employee has a surplus at the end of the calendar year it can be treated as follow:
1. The employer can return the surplus to the employee as a bonus. The return of funds would constitute a taxable event to the employee.
2. The employer can use the surplus in the entire account to offset current and future administrative cost
3. The employer can distribute proceeds to each employee as indicated in paragraph 1 above.
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