Health Plan Alternatives | Cafeteria Plans

In 1978, Cafeteria Plans were created by Congress. They are an additional benefit employers can offer to their employees. The purpose of the Cafeteria plan is to enable both the employer and the employee to purchase benefits on a tax free basis, thus reducing their total costs for benefits.

EMPLOYERS reduce their expense for benefits through a cafeteria plan. The employer eliminates the matching of FICA, 7.65%, Federal Unemployment (FUTA), and State Unemployment (SUTA) on every dollar an employee puts through the program. In the state of Ohio the employer also eliminates Worker's Compensation for every dollar put through the program.
EXAMPLE: If the employer has a total premium expense for the year of $10,000 with taxes equal to 10%, his or her savings will be $765.00.

There are three ways to gain a tax savings through a cafeteria plan and an employer may offer any one or all of the following:

1. HEALTH PREMIUMS - The portion an employee pays toward insurance whether it be health, dental, vision, etc... may be paid before taxes under a Cafeteria Plan. The insurance, however, must be employer sponsored.

2. MEDICAL REIMBURSEMENT - An employee may elect to have pre-tax reductions made from his or her pay. This money may be used to pay for out-of pocket expenses which the insurance plan provided by the employer does not cover. Out-of pocket expenses may include medical deductibles, prescriptions, orthodontia, glasses, etc....
Expenses solely for cosmetic reasons are generally not accepted. The annual limit for medical reimbursement is set by the employer.

3. DEPENDENT CARE - An employee may elect to have pre-tax reductions taken out of his or her pay to use toward child care for children under 13 years of age. This money may also be used for an older child or an adult whom the employee claims as a dependent on his or her tax return. The limit per year for dependent care is $5,000.00 whether it is for one or more dependents.

Needs change for everyone. Under the Cafeteria Plan the employee annually may choose what he or she wishes to put through the plan.

The following are illustrations designed to show the employer and the employee how savings may be brought about by installing a Cafeteria Plan. These illustrations are given with the understanding that the publisher and distributor are not rendering legal, accounting, or other professional advice and assume no liability whatsoever in connection with its use.

This is an illustration to show the savings an employer gains from installing a Section 125 Cafeteria Plan. This illustration shows premiums, dependent care, and flexible spending accounts.

The ABC COMPANY

Employee Annual Premium Dependent Care Flexible Spending Employer FICA Savings Worker's Comp Savings
(Ohio Only) Annual
Savings

Doe, J. $2,400.00 $2,000.00 $336.60 $66.00

Worker, S. $1,800.00 $500.00 $175.95 $34.50

$3,000.00 $500.00 $267.75 $52.50

Total $7,200.00 $2,000.00 $1,000.00 $780.30 $153.00 $933.30

Total Savings $933.30
- Estimated Annual Cost of Plan $255.00
= $678.30 EMPLOYER SAVINGS

The following illustration is to show the savings an employee gains by using a Cafeteria Plan.

Cafeteria Plan Administration by Health Plan Alternatives, Inc. includes the following:

Plan Documents
Summary Plan Descriptions
Employee Election Forms
Check Writing for Dependent Care and Medical Reimbursement Accounts
ACH ( U.S. electronic banking transaction system)
Annual Preparation of 5500 Forms to be filed with the IRS (if needed)
Discrimination Testing

Fees can be per employee or on a flat monthly rate. A flat monthly rate will be based on group size and program. We will be happy to answer any questions you may have.