By Danielle Capilla

Chief Com­pli­ance Offi­cer at Unit­ed Ben­e­fit Advisors

CafeteriaLineThe Employ­ee Retire­ment Income Secu­ri­ty Act (ERISA) was signed in 1974. The U.S. Depart­ment of Labor (DOL) is the agency respon­si­ble for admin­is­ter­ing and enforc­ing this law. For many years, most of ERISA’s require­ments applied to pen­sion plans. How­ev­er, in recent years that has changed, and group plans (called “wel­fare ben­e­fit plans” by ERISA and the DOL) now must meet a num­ber of requirements.

Gen­er­al­ly, ERISA applies to:

  • Health insur­ance – med­ical, den­tal, vision, pre­scrip­tion drug, health reim­burse­ment arrange­ments (HRAs) and health flex­i­ble spend­ing accounts (FSAs) (Health sav­ings accounts are not gov­erned by ERISA but the relat­ed high deductible health plan is.)
  • Group life insurance
  • Dis­abil­i­ty income or salary con­tin­u­ance unless paid entire­ly by the employ­er from its gen­er­al assets
  • Sev­er­ance pay
  • Fund­ed vaca­tion ben­e­fits, appren­tice­ship or oth­er train­ing pro­grams, day care cen­ters, schol­ar­ship funds, and pre­paid legal services
  • Any ben­e­fit described in sec­tion 302© of the Labor Man­age­ment Rela­tions Act (oth­er than pen­sions on retire­ment or death)

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.

Cafe­te­ria plans are not ERISA plans, but many of the com­po­nents ben­e­fit plans offered through a cafe­te­ria plan are sub­ject to ERISA. This is because a cafe­te­ria plan serves as a vehi­cle for employ­ees to elect ben­e­fits and pay for them. This can cre­ate con­fu­sion for plan spon­sors when they deter­mine what ERISA oblig­a­tions they have in rela­tion to their cafe­te­ria plan, as well as to their indi­vid­ual offerings.

Only cer­tain ben­e­fits can be offered through a cafe­te­ria plan and not all ben­e­fits offered under a cafe­te­ria plan can or will be sub­ject to ERISA. Employ­ers should take care to under­stand the dis­tinc­tions and inter­play between ERISA require­ments and cafe­te­ria plan require­ments. Request UBA’s ACA Advi­sor, “Report­ing and Plan Doc­u­ments Under ERISA and Cafe­te­ria Plan Rules” for com­pre­hen­sive infor­ma­tion on report­ing, Form 5500, and require­ments for plan documents.

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