Cafeteria Plan.

A Cafeteria Plan is a separate written plan maintained by an employer for it's employees that meets the specific requirements and regulations of Section 125 of the Internal Revenue Code. It provides participants an opportunity to receive certain benefits on a pretax basis. Participants in a Cafeteria Plan must be permitted to choose among at least one taxable benefit (such as cash) and one qualified benefit.

A qualified benefit is a benefit that does not defer compensation and is excludable from an employee’s gross income under a specific provision of the Code, without being subject to the principles of constructive receipt.

The written plan must specifically describe all benefits and establish rules for eligibility and elections.

A Section 125 plan is the only means by which an employer can offer employees a choice between taxable and nontaxable benefits without the choice causing the benefits to become taxable. A plan offering only a choice between taxable benefits is not a Section 125 plan.

NON-DISCRIMINATION TESTING

Whether you have a full Cafeteria Plan, Flexible Spending Account (FSA) or a Premium Only Plan (POP), the Internal Revenue Service (IRS) requires annual Non-Discrimination Testing of employees at the end of each plan year. Kazdon administration offers a complete compliance testing curriculum for each type of plan:

  • Cafeteria Plan Testing
  • FSA Health Care Testing
  • FSA Dependent Care Testing

What Types of Section 125 Non-Discrimination Testing of Employees are Available?

Cafeteria Plan Testing

  • 25% Key Employee Concentration Test – Ensures of all the pre-tax dollars being spent through the Cafeteria Plan, no more than 25% is being spent by Key Employees.
  • Eligibility Test - Ensures enough non-highly compensated employees are eligible to participate in the Cafeteria Plan.

FSA Health Care Testing

  • Eligibility Test - Ensures that enough non-highly compensated employees are benefiting from the plan.

FSA Dependent Care Testing

  • Eligibility Test - Ensure enough non-highly compensated employees are eligible to participate in the Dependent Care plan.
  • 55% Average Benefits Test - Ensures that, on average, highly compensated employee elections are in proportion to non-highly compensated employee elections.
  • 5% Owners Test - Ensures that any participants who own more than 5% of the shares of the employer are not disproportionably benefiting from the plan.