Simple Cafeteria Plan Continuing Education

1. Course #74968 Simple Cafeteria Plan Continuing Education

2. Introduction • Cafeteria Plan Defined: Plan sponsored by the employer for the benefit of the employees which gives the employee a choice between pretax benefits and taxable income.

3. Requirements • Written Plan Document and SPD • Only Employees & retirees eligible to participate • Plans cannot discriminate in plan design or in benefit in favor of owners, officers and/or highly compensated employees

4. Authorization • Internal Revenue Code Section 125

5. Simple Cafeteria Plans – The Beginning • Authorized under the PPCAA • First effective January 2011 • Purpose – plan treated as meeting the nondiscrimination rules for cafeteria plans and the component benefits except for adoption assistance. • Available only for employers with an average of 100 or fewer employees during either of the 2 preceding years.

6. Who can sponsor a Simple Cafeteria Plan • General Rule – average of 100 or fewer employees during either of 2 preceding years. • Year defined as the employer’s Plan Year

7. Who can sponsor a Simple Cafeteria Plan • Leased employees are counted when determining if an employer is eligible • Code is silent on whether to count part-time, temporary or seasonal employees.

8. Who can sponsor a Simple Cafeteria Plan • New Employer Rule – Average number of employees the employer expects to employ this year. • Special rule for growing employers – if the plan is already established, the employer may continue the Simple Cafeteria Plan until the year following the first year that the employer employs an average of 200 or more employees on business days.

9. Who can sponsor a Simple Cafeteria Plan • Any predecessor employer is included for eligibility determination processes. • If multiple businesses are treated as a single employer under Code Sections 52(a) &(b), all employees of all of the businesses must be combined.

10. Required Contributions • Employers that sponsor a Simple Cafeteria Plan are required to make certain contributions to the plan to provide benefit for “qualified employees”.

11. Required Contributions • Contributions must be made for each qualified employee, regardless of whether the employee makes any salary reduction under the plan. • Contributions must be “true” employer contributions in addition to any Salary reduction made by the employee. • A uniform percentage – but not less than 2% of the employee’s compensation for the plan year (non-elective method), or

12. Employer Contributions must be either: • An amount that equals or exceeds the lesser of: • 6% of the employee’s compensation for the plan year, or • Twice the employee’s salary reduction contributions (matching contributions method). • Employers may make contributions in excess of those required.

13. Required Contributions • The same contribution method must be used for all employees. • Amounts must be available toward the cost of any qualified benefit offered under the plan. • A cash-out option does not have to be offered

14. Required Contributions • Matching contributions cannot be made at a higher rate for HCE or key EES than for an employee who is not HCE or Key • Plan document must require employers to make these contributions • Employer contributions must be clearly explained in the SPD and all enrollment materials.

15. Eligibility and Participation Requirements • All employees with at least 1,000 hours of service in the preceding plan year must be eligible to participate • Each employee who is eligible to participate must be able to elect any benefit available under the plan

16. Eligibility and Participation Requirements • Ineligible to participate: • Self-employed individuals • Partners in a partnership • More than 2% S-Corporation shareholder and Section318 attribution relatives.

17. Eligibility and Participation Requirements • Employers may elect to exclude: • Employees who have not attained age 21 before the start of the plan year. • Employees who have less than 1 year of service with the employer – or a shorter period of service selected by the employer. • Employees covered by a collective bargaining agreement • Certain non-resident aliens working outside the US

18. Which non-discrimination requirements are covered by the Safe Harbor: • Code Section 105(h) for self-insured medical plans including health FSA eligibility & benefit tests. • Code Section 129 for DCAP eligibility, contributions & benefits, more than 5% owner’s concentration test, & 55% average benefit test.

19. Which non-discrimination requirements are covered by the Safe Harbor: • Code 79(d) – nondiscrimination rules for group term life insurance (eligibility & benefit tests) • Unclear whether safe harbor extends to the provisions of health care reform for Section 105(h)(2) testing

20. How a simple Cafeteria Plan can help employers: • Allows them to offer a cafeteria plan when they would have problems meeting applicable nondiscrimination requirement: • Key employee 25% concentration • DCAP 55% average benefit test • Avoids the responsibility of performing all 9 discrimination tests

21. How does the employer implement a Simple Cafeteria Plan? • Decide whether to establish a Simple Cafeteria Plan • Is the employer eligible? • Is the employer willing and able to make the required contributions? • Is the employer likely to have difficulty passing the nondiscrimination tests?

22. How does the employer implement a Simple Cafeteria Plan? • Decide on Plan Terms • What contribution method will the employer use – nonelective or matching? • Will contributions be the minimum amount or will there be additional contributions? • Who will be eligible – only those required to be eligible, or other employees as well • Adopt or amend the plan • Communicate the plan to employees

23. Unauthorized Entities An Unauthorized Entity is an insurance company that is not licensed by the Florida Office of Insurance Regulation. Agents and Brokers have responsibility for conducting reasonable research to ensure they are not writing policies or placing business with Unauthorized Entities. Lack of careful screening can result in significant financial loss to Florida residents due to unpaid claims and/or theft of premiums. Under Florida law Insurance Agents and Brokers can be held liable for unpaid claims. Agents may be held liable when representing these Unauthorized Entities. It is the Agents and Brokers responsibility to give fair and accurate information regarding the companies they represent. Any question about the authorized status of a company can be checked by calling the Florida Department of Financial Services at 1-877-693-5236 in Florida or 1-850-413-3089 outside the state of Florida. We urge all agents and brokers to adhere to this admonition. The state of Florida has taken a very strong position on the issue of Unauthorized Entities.