Administration for Section 125, FSA, HSA, HRA & Transit Plans.
Section 125 Cafeteria Plan administration is available for those clients who prefer to outsource Section 125 FSA, HSA and or HRA administration. We provide a state-of-the-art web portal for 24/7 access to account information and funds.
The Section 125 Plan provides tax savings by reducing employee medical premiums from your gross salary prior to calculation of federal income and social security taxes, as allowed under Internal Revenue Code Section 125.
Newly eligible employees may elect to waive Section 125 at the time they choose a medical plan. Otherwise it can only be changed during the open enrollment, for a January 1 effective date.
The Section 125 Plan reduction does not reduce the salary on which your maximum deferral limit for the Voluntary Investment Program is calculated. The reduction lowers the salary on which both Social Security and Unemployment Benefits are calculated.
Section 125 Plans include Flexible Spending Accounts and Dependent Care Accounts. With the addition of HSA Section 125 plans and Section 105 HRA plans, employers have more options to reduce health insurance premiums and taxes through the use of high deductible health plans (HDHP). Some of the premium savings can be used to cushion the effect of these new high deductibles to employees through either employee funded (HSA) or employer funded (HRA) spending accounts.
There are a few common questions about a Section 125 or Cafeteria Plan, such as, who is eligible or what forms do I need to file. Below are some answers; more info can be found at HR360.com. (Login below.)
Employers are eligible to establish a simple cafeteria plan if they employ an average of 100 or fewer employees during either of the 2 preceding years.
- If the business was not in existence throughout the preceding year, employers are eligible if they reasonably expect to employ an average of 100 or fewer employees in the current year.
- If the employer establishes a simple cafeteria plan in a year that they employ an average of 100 or fewer employees, they are considered an eligible employer for any subsequent year as long as they do not employ an average of 200 or more employees in a subsequent year.
Eligibility and Participation Requirements
An eligible employer will meet the eligibility and participation requirements for a simple cafeteria plan if, under the plan:
- All employees who had at least 1,000 hours of service for the preceding plan year are eligible to participate; and
- Each employee eligible to participate in the plan may, subject to terms and conditions applicable to all participants, elect any benefit available under the plan.
However, employers may exclude from the plan employees who:
- Are under age 21 before the close of a plan year;
- Have less than 1 year of service with the employer as of any day during the plan year;
- Are covered under a collective bargaining agreement; or
- Are nonresident aliens working outside the U.S. whose income did not come from a U.S. source.
Filing requirement for a cafeteria plan
Generally, no. If you only have a cafeteria plan, you are not required to file Form 5500 or Schedule F. However, if you have a welfare benefit plan, you may be required under Department of Labor regulations to file a return for that plan. Please see the Form 5500 instructions or contact the U.S. Department of Labor for more information.