IRS code allows for employers to implement a pre-tax Section 125 Cafeteria Plan as an employee benefit.  This plan allows for unreimbursed insurance expenses to be paid pre-tax.  Examples include insurance premiums, doctors office co-pays, prescription co-pays, eye exams, eye glasses, contact lenses, laser eye surgery, orthodontics, and more…

Cafeteria Plan – Another Feather in Your Benefits Cap Implementing a Section 125 Cafeteria Plan will strengthen your benefits program, save your company FICA taxes, and save participating employees 25% to 40% in taxes (depending on their income tax bracket).  What other benefits can you implement that strengthen your benefits package and you can do so with little or zero out-of-pocket dollars?

If your employees are paying any portion of the monthly insurance premiums, then to save FICA taxes, implement a Premium Only Plan (POP).  A POP allows for employees to pay their portion of the group insurance premiums on a pre-tax basis and is a good start to saving taxes for you and your employees.  You will save FICA taxes while saving your employee 17% to 40% on dollars they’re already paying.

With a POP there is no real ongoing administration as you’ll use payroll to take care of the dollar flow’s.  Discrimination testing is a requirement that will need to be performed at least once at the beginning of each plan year to ensure your plan is in compliance.

To take your pre-tax 125 plan to the next level means implementing the Flexible Spending Accounts (FSA).  Generally, there are two FSA accounts including a Medical FSA (medical / dental / vision) and a Dependent / Elder 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, and more.

These flexible spending accounts (FSA) are an easy way to supplement any gaps in your existing benefits program, save money for you and your employees, and is a great morale booster.

If you’re a small employer that doesn’t have a dental or vision plan because of costs.  Implementing the FSA will at least allow for your employees who have these types of out-of-pocket expenses to pay them on a pre-tax basis.  Wouldn’t it make your employees happy to be able to save 17% to 40% on a $5,000 orthodontic expense for a family member?  That would equal a $1,250 tax savings for an employee in the 25% tax bracket.

The FSA accounts are where the administration hassles of receiving claims, verifying claims as eligible expenses, answering employee questions, reimbursing claims, etc. are seen.  Which may lead you to consider outsourcing your ongoing administration through a qualified third party administrator.  If you’ve only got a few participants in the FSA in-house administration is something you can probably handle, but with monthly minimum administrative fees outsourcing is pretty economical.

Partnering with a qualified Cafeteria Plan Administrator such as BusinessPlans, Inc. will allow your employees to access their individual account information 24-hours a day, seven days a week from anywhere in the world.  As an employer, you also gain 24-hour Internet access.  You may query reports and check the status of your plan around the clock when you want and need your plan information.

Every organization has limits on the resources it has available for use.  Outsourcing will allow your company to focus and redirect its resources; most often people resources, from non-core activities to profit gaining activities.

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!