By Danielle Capilla, Chief Compliance Officer at United Benefit Advisors 

Cafe­te­ria plans, or plans gov­erned by IRS Code Sec­tion 125, allow employ­ers to help employ­ees pay for expens­es such as health insur­ance with pre-tax dol­lars. Employ­ees are giv­en a choice between a tax­able ben­e­fit (cash) and two or more spec­i­fied pre-tax qual­i­fied ben­e­fits, for exam­ple, health insur­ance. Employ­ees are giv­en the oppor­tu­ni­ty to select the ben­e­fits they want, just like an indi­vid­ual stand­ing in the cafe­te­ria line at lunch.

Only cer­tain ben­e­fits can be offered through a cafe­te­ria plan: (1) cov­er­age under an acci­dent or health plan (which can include tra­di­tion­al health insur­ance, health main­te­nance orga­ni­za­tions (HMOs), self-insured med­ical reim­burse­ment plans, den­tal, vision, and more); (2) depen­dent care assis­tance ben­e­fits or DCAPs; (3) group term life insur­ance; (4) paid time off, which allows employ­ees the oppor­tu­ni­ty to buy or sell paid time off days; (5) 401(k) con­tri­bu­tions; (6) adop­tion assis­tance ben­e­fits; and (7) health sav­ings accounts or HSAs under IRS Code Sec­tion 223.

Some employ­ers want to offer oth­er ben­e­fits through a cafe­te­ria plan, but this is pro­hib­it­ed. Ben­e­fits that you can­not offer through a cafe­te­ria plan include schol­ar­ships, group term life insur­ance for non-employ­ees, trans­porta­tion and oth­er fringe ben­e­fits, long-term care, and health reim­burse­ment arrange­ments (unless very spe­cif­ic rules are met by pro­vid­ing one in con­junc­tion with a high deductible health plan). Ben­e­fits that defer com­pen­sa­tion are also pro­hib­it­ed under cafe­te­ria plan rules.

Cafe­te­ria plans as a whole are not sub­ject to ERISA, but all or some of the under­ly­ing ben­e­fits or com­po­nents under the plan can be. The Patient Pro­tec­tion and Afford­able Care Act (ACA) has also affect­ed aspects of cafe­te­ria plan administration.

Request UBA’s PPACA Advi­sor, “Cafe­te­ria Plans: Change in Sta­tus and Chang­ing Employ­ee Elec­tions” for com­pre­hen­sive infor­ma­tion on how the law affects:

  1. Mak­ing elec­tion changes (includ­ing con­sis­ten­cy rules, plan recog­ni­tion of the change, doc­u­men­ta­tion require­ments and timing)
  2. Qual­i­fy­ing change of sta­tus events
  3. Oth­er events that allow a change in elec­tions (do you know all 13, includ­ing the includ­ing the new reduc­tion in hours and Exchange/Marketplace enroll­ment events allowed by the Afford­able Care Act?)

Be sure to get the lat­est infor­ma­tion on how the ACA affects cafe­te­ria plans.

 

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