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Cafeteria Plan Employee Benefit Should be Another Feather in Your Benefit Programs Cap

 

David Turner

 

IRS code allows for employers to implement a pre-tax Section 125 Cafeteria Plan as an employee benefit. This plan allows for unreimbursed insurance expenses to be paid pre-tax. Examples include insurance premiums, doctors office co-pays, prescription co-pays, eye exams, eye glasses, contact lenses, laser eye surgery, orthodontics, and more...

Implementing a Section 125 Cafeteria Plan will strengthen your benefits program, save your company FICA taxes, and save participating employees 17% to 40% in taxes (depending on their income tax bracket). What other benefits can you implement that strengthen your benefits package and you can do so with little or zero out-of-pocket dollars?

If your employees are paying any portion of the monthly insurance premiums, then to save FICA taxes, implement the Premium Only Plan (POP) portion of a pre-tax 125 plan. A POP allows for employees to pay their portion of the group insurance premiums on a pre-tax basis and is a good start to saving taxes for you and your employees. You will save FICA taxes while saving your employee 17% to 40% on dollars they're already paying.

With a POP there is no real ongoing administration as you'll use payroll to take care of the dollar flow's. Discrimination testing is a requirement that will need to be performed at least once at the beginning of each plan year to ensure your plan is in compliance.

To take your pre-tax 125 plan to the next level means implementing the Flexible Spending Accounts (FSA) portion of a pre-tax 125 plan. Generally, there are two FSA accounts including a Medical FSA (medical / dental / vision) and a Dependent / Elder Daycare FSA.

These FSA accounts will allow for the unreimbursed out-of-pocket expenses to be paid on a pre-tax basis. Examples include dependent daycare, office co-pays, prescription co-pays, eye exams, eyeglasses, contacts, orthodontics, and more.

These flexible spending accounts (FSA) are an easy way to supplement any gaps in your existing benefits program, save money for you and your employees, and is a great morale booster.

If you're a small employer that doesn't have a dental or vision plan because of costs. Implementing the FSA will at least allow for your employees who have these types of out-of-pocket expenses to pay them on a pre-tax basis. Wouldn't it make your employees happy to be able to save 17% to 40% on a $5,000 orthodontic expense for a family member? That would equal a $1,250 tax savings for an employee in the 25% tax bracket. Not to mention, it would save you over $380 in FICA taxes as well.

The FSA accounts are where the administration hassles of receiving claims, verifying claims as eligible expenses, answering employee questions, reimbursing claims, etc. are seen. Which may lead you to consider outsourcing your ongoing administration through a qualified third party administrator. If you've only got a few participants in the FSA in-house administration is something you can probably handle, but with monthly minimum administrative fees outsourcing is pretty economical.

Partnering with a qualified Cafeteria Plan Administrator such as BusinessPlans, Inc. (BPI) - myCafeteriaPlan will provide you and your employees with online account access 24-hours a day. As an employer, your 24-hour Internet access allows you to query reports, add employees, term employees, and check the status of your plan around the clock when you want and need your plan information.

Every organization has limits on the resources it has available for use. Outsourcing will allow your company to focus and redirect its resources; most often people resources, from non-core activities to profit gaining activities.

 

David Turner is Vice President at BusinessPlans, Inc. (BPI)- myCafeteriaPlan, which has been a third party administrator for over 14 years for pre-tax section 125 cafeteria FSA plans, section 105 healthcare reimbursement arrangements (HRA), and section 132 qualified transportation (Transit) plans. Visit www.myCafeteriaPlan.com or call 800.865.6543 for more information.

 

 

 


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