Governed under Section 125 of the Internal Revenue Code, Cafeteria Plans help you and your employees save money by using tax-free dollars to pay for group health insurance premiums, out-of-pocket medical expenses, the cost of dependent care and more. Much like a cafeteria offers choices ranging from blue plate specials to a la carte items, Cafeteria Plans offer employees the option to participate in any or all of several available plans.

How Cafeteria Plans Work

An employee selects a contribution amount for the year, and the contribution is set aside to pay for eligible out-of-pocket expenses. Those expenses are paid for by using tax-fee dollars, which in turn lower year-end taxes and save the employee money. The employee then submits substantiation of their eligible expenses to eBenefits Administrators for reimbursement.

Benefits

Cafeteria Plans benefit employers and employees in several ways: Tax Savings Employers save on payroll taxes (FICA, FUTA and SUI) and workers' compensation premiums. Generally, employers save 8% on FICA taxes and 10% on each pre-tax dollar employers contribute toward premiums. Employees save on Federal, State and FICA taxes. The average employee saves 25-30% on dollars they are already paying. When you consider the average family pays $800 - $2,500 per year on medical expenses, that's a fairly significant savings! Flexibility Employers receive greater flexibility in controlling benefit choices and escalating benefit costs. Employees can choose how much money they want to contribute as well as what options they want to participate in.

Plan Types

There are three primary types of Cafeteria Plans: 1. Premium Only Plan (POP) If an employee is paying for any portion of their health insurance premium, a POP deducts their portion from payroll on a pre-tax basis, resulting in lower employee and employer taxes. POPs are the most common component of all Cafeteria Plans and are most often used in conjunction with Flexible Spending Accounts and Dependent Care Assistance Plans. Eligible plans are limited to the employer's group plan(s) such as medical, dental and vision, as well as a number of voluntary products. (Disability plans should not be pre-taxed, otherwise the benefits are taxable.) 2. Flexible Spending Account (FSA) An FSA helps fill in the coverage gap between the health plan and out-of-pocket expenses like deductibles, office co-payments, prescriptions, over-the-counter drugs, dental and vision care. The expenses may be payroll deducted on a pre-tax basis, resulting in significant tax savings for employees and employers. Many employers falsely assume an FSA is more complex to implement than a POP. However, the only difference between installing a POP and a plan that also includes an FSA is adding employee education. Notes: As of January 1, 2011, FSA funds can no longer be used to purchase over-the-counter medicines and drugs unless the medicine or drug is prescribed. Regardless of your plan year, under PPACA (health reform law), the maximum annual election will be capped at $2,500 effective 1/1/2013 for FSAs. 3. Dependent Care Assistance Plan (DCAP) A DCAP allows employees to pay for qualified dependent care expenses like day care, nursery school, preschool, before/after-school care, adult day care facilities and adult in-home day care. Married couples filing jointly and singles can set aside up to $5,000 to pay for these expenses tax-free. Persons qualified for care under a DCAP include: A dependent that is under the age of 13 when the care was provided and can be claimed as an exemption on a participant's income taxes A dependent who is mentally or physically challenged and can be claimed as an exemption on a participant's income taxes A spouse who is mentally or physically challenged

Debit Card Access

Our optional debit card, the mySourceCard® MasterCard® Debit Card, takes funds directly from an established FSA account to pay for eligible out-of-pocket expenses at any qualified service provider that accepts MasterCard®. Transactions post online instantly, eliminating the hassle of claim forms and reimbursement checks and, in most cases, the need to submit receipts.

IRS Regulations

The Uniform Coverage Rule applies to FSAs and states an employee's annual election amount must be made available from the beginning of the plan year. For example, if an employee elects $1,200 for the FSA plan year and has a $300 dental work claim in the first month, it is required that the employee is paid or reimbursed in full for the expense. Once a plan election is made for the year, the election is irrevocable unless the employee incurs an IRS-defined qualifying event like marriage, divorce, birth or child adoption, employment status change, etc. The Use-it-or-Lose-it-Rule applies to both FSAs and DCAPs and states the funds an employee elects must be utilized by the end of the plan year. However, an employer can choose to give employees a grace period of up to 2 1/2 months after the plan year ends to file claims.

Comprehensive Administration

eBenefits Administrators provides complete, comprehensive administration of Cafeteria Plan services. Our experienced team effortlessly navigates the complex world of Cafeteria Plans, taking care of enrollment, account set-up, implementation, education, staff training and account administration. Before a Cafeteria Plan is implemented, we make certain the plan passes discrimination testing as required by the IRS. We perform this testing throughout the year to account for the addition and deletion of employees for consistent plan maintenance. We also provide an employer with all the necessary legal documentation they need to ensure the plan is IRS compliant as well as a variety of reimbursement options. Most importantly, we give employees the personalized support they need to understand and utilize all of the advantages Cafeteria Plans offer. An employee can simply pick up the phone or email us any time they have a question or concern. Contact us today to learn more.