1 / 8

Lecture 18 Cafeteria Plans

Lecture 18 Cafeteria Plans. Reasons for Cafeteria Plans Taxation Nature of Cafeteria Plans Types of Plans Obstacles Issues in Plan Design. Reasons for Cafeteria Plans. Greater appreciation of benefits by employees Meet employee needs better Cost control. Taxation.

belva
Download Presentation

Lecture 18 Cafeteria Plans

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Lecture 18Cafeteria Plans • Reasons for Cafeteria Plans • Taxation • Nature of Cafeteria Plans • Types of Plans • Obstacles • Issues in Plan Design

  2. Reasons for Cafeteria Plans • Greater appreciation of benefits by employees • Meet employee needs better • Cost control

  3. Taxation • Section 125 of the Internal Revenue Code applies • If properly structured, then the employee is not taxed on benefits provided through a cafeteria plan except to the extent that the benefits would normally be taxed (life insurance in excess of $50,000)

  4. Nature of Cafeteria Plans • Permissible benefits • Medical expenses • Disability • Death and dismemberment • Vacations • Legal expense plans • Dependent care assistance • Group term life • Choice of medical expense plans does not constitute a cafeteria plan unless cash is a choice

  5. Nature of Cafeteria Plans - (cont.) • Benefit election • Prior to the beginning of the year • Changes only for allowed circumstances • Change in family status • Change in job status • Payroll deductions and salary reductions • Premium-conversion plans • Flexible spending accounts (FSAs) • Use it or lose it requirement • Amounts not taxed under federal and state taxes, and under Social Security

  6. Types of Plans • Core-Plus plans • Modular plans • Choice among several pre-designed plans • Salary-Reduction-Only plans

  7. Obstacles to Cafeteria Plans • Unsettled federal income tax rules • Meeting nondiscrimination rules • Concentration test • Less than 25% of benefits for key employees • Eligibility test • Condition for participation rules • Not discriminatory in favor of HCEs • Nondiscriminatory contributions and benefits • Employer’s obligation to prevent unwise employee choices • Negative attitudes • Adverse selection • Cost

  8. Issues in Plan Design • Type and amount of benefits to include • Level of employer contributions • Premium-conversion or FSA options • Change of benefits

More Related