Cafeteria Plans

What is a Cafeteria Plan?

Many employers have instituted Cafeteria Plans (Sec. 125 Plans) which allow employees to choose among benefits such as health insurance and dependent care. The value of these benefits are not included in gross income, making them not subject to social security, medicare or Federal income tax.

In the ACA health insurance benefit arena where discrimination is prohibited, an employer providing only health insurance to themselves or highly compensated employees, is liable to pay for the same health insurance for ALL of its employees.
The Section 125 Plan allows employees, not the employer, to use their gross pay to purchase health insurance. For most small employers with less than 50 employees, this provision avoids the liability of having to provide health insurance for ALL employees under identical funding terms.

What filings are required?

Effective for 2001 plan years, employers are no longer required to file Form 5500, Annual Return/Report of Employee Benefit Plan along with Schedule F, Fringe Benefit Plan Information.

The employer is required to have a written plan and communicate such to its employees. Please contact us if you require a plan document.

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