Why would an employee elect non-insured medical expenses as part of the Plan?
The medical reimbursement plan you could offer in a Cafeteria Plan could cover expenses not covered by your group medical insurance plan. That might include expenses like those listed on the examples sheet included with the Participant Information and Enrollment Package, co-pay amounts that employees pay as part of their group insurance, or deductible amounts that employees are required to pay themselves.
Why is a choice among benefits important?
Not all employees have the same needs. For example, some employees have spouse who are employed on full-time basis and covered by a health insurance plan. Such employees may not need dependent health insurance under your company’s plan. Other employees with working spouses and young children may opt for dependent care (day care) coverage. Cafeteria Plans give the employees the opportunity to choose the benefits most important to their particular situations. It also provides the opportunity to pay for these benefits on a pre-tax basis. Employees appreciate this unique approach and the savings they realize as well.
When are these benefit elections made?
Your Cafeteria Plan will operate on a 12-month plan year, with the potential exception of the first plan year. Prior to the beginning of each plan year, each employee will select which benefits he or she wants to fund, by redirecting a portion of salary into the appropriate spending accounts. Conservative estimates should be used to ensure that employee’s expenses will use up his entire account during the year. COBRASOURCE will work with you to help in this important election phase each year.
Once the election is made, can participants change their minds during the year?
Once made, elections are irrevocable for that plan year. New elections are made prior to the beginning of each subsequent plan year. However, certain situations, known as status changes, can arise during the plan year. These allow the participant to change an election.
These situations include:
- Marriage or divorce of the participant
- Birth or adoption of a child (pregnancy does not constitute a status change)
- Death of a spouse or child of the participant
- Change in employment status of participant or participant’s spouse
- Coming of age of child or dependent
- Participant beginning or ending adoption proceedings
- HIPPA Special Enrollment, Medicare and Medicaid entitlement
- Judgment, decrees or orders
- FMLA (Family Medical Leave) Leave of absence, or COBRA Event
What happens if there is money left in the participants account at the end of the plan year and the participant has no more reimbursement requests?
In that case, the participant forfeits the money in the account and the money remains as a general asset of the employer. This is the “use it or lose it” feature of a Cafeteria Plan. It is important that participants make conservative estimates of their reimbursable expenses prior to each plan year.
Dependent child care expenses and group medical and life insurance premiums are generally easy to estimate.
Medical expenses not covered by insurance are harder to predict.
However, experience shows that a when a participant is informed that he has money left in his account, and the year is coming to an end, the participant will go for a much-delayed check-up, or get a needed new pair of glasses, etc.
With proper planning, forfeitures can be generally avoided.
Are there any employees that cannot participate in a Section 125 Cafeteria Plan?
Partners in a partnership, sole proprietors and owners who own greater than 2 percent of a Subchapter S Corporation cannot participate in a Cafeteria Plan.
What are the requirements for installing a Cafeteria Plan?
The only requirements for installing a Cafeteria Plan are to prepare the appropriate plan documents, execute the plan document, and have all eligible employees make their benefit elections. Summary Plan Descriptions detailing the plan’s eligibility requirements, benefits and election requirements must be given to all employees. There is also an annual IRS reporting requirement for some plans using Form 5500.
Should I install a Cafeteria Plan?
Many employers have been faced with the same question and have decided to implement a Cafeteria Plan.
Their reasons included:
- They felt their employees would appreciate the “choice” aspect of Cafeteria Plans which would allow them to pick and choose benefits most suited to their needs.
- The employees also appreciate the increase in the spending power produced by paying expenses through the tax-advantage Cafeteria Plan.
- Employers will save considerable sums through reduced FICA tax obligations.
- These savings are usually sufficient to cover most of the plan implementation and annual administration costs.
- Providing employees with this type of fringe benefit plan provides a competitive edge for an employer in attracting and retaining good employees.
- Basically, employers feel these and other advantages far outweigh the administrative responsibilities this type of plan entails.
- These employers agree that Cafeteria Plans present a new, unique method for providing employees with benefits they want and need in a cost-effective manner.