How to Set Up a Cafeteria Plan

Setting up and implementing a pre-tax Section 125 Cafeteria Plan is fairly easy.  Here’s how you set up a cafeteria plan.  Essentially, an employer needs to establish what type of plan that will provide the solution to their unique plan needs, set up the plan with proper documentation, notify & educate employees, and perform non-discrimination testing.

A Section 125 Cafeteria Plan is a very broad benefit.  In simplest terms one may break down such a plan into three basic levels which include a Premium Only Plan (POP), Flexible Spending Accounts (FSA), and a full-blown Cafeteria Plan that uses “credits or benefit bucks” also referred to as a Consumer Driven Health Care (CDHC) or Defined Contribution Plan.

A Premium Only Plan (POP) allows for employees to pay their portion of the group insurance premium on a pre-tax basis and is a good start to saving taxes for you and your employees.

Taking your 125 plan to the next level includes implementing the Flexible Spending Accounts (FSA).  Generally, there are two FSA accounts including a Medical FSA (medical / dental / vision) and a Dependent Daycare FSA.  These FSA accounts will allow for the unreimbursed out-of-pocket expenses to be paid on a pre-tax basis.  Examples include dependent daycare, office co-pays, prescription co-pays, eye exams, eyeglasses, contacts, orthodontics, etc…

A full-blown Cafeteria Plan / Consumer Driven Health Care (CDHC) plan that utilized “credits or benefit bucks” simply allows the employer to provide employees with a limited number of employer sponsored credits, which the employee then decides where they’d like to apply these credits within the menu of benefit options within the company’s benefit program.  Employees may then supplement with their own dollars to buy additional benefits or increase levels of coverage.
Plan Document for your Section 125 Cafeteria PlanSection 125 Cafeteria Plan Document

Partnering with a qualified Section 125 Cafeteria plan administrator will provide an up-to-date plan document and set up.

For example, myCafeteriaPlan.com provides employers outsourcing their ongoing administration with:

* Up-to-date Plan Document
* Summary Plan Description (SPD) master copy
* Corporate Resolution
* Customized Forms (enrollment, change of status, termination)
* Legal Review
* Attorney Opinion Letter
* Discrimination Testing
* Signature-ready Form 5500, if needed
* Powerful and easy-to-understand employee education

Their documentation and plan set up incurs a one-time fee, as they do not have a yearly renewal fee.  Once an employer signs with myCafeteriaPlan, they will simply pay the ongoing cost of administration.  Ongoing administration is determined by the total number of participants, NOT accounts.  As the number of participants increase, the cost per participant will decrease.

Contact BPI at 800.865.6543 to discuss setting up your pre-tax 125 cafeteria plan today!

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