Eligible Benefits Under A Cafeteria Plan

The following benefits are permitted in a Cafeteria Plan:

• The employee-paid share of premiums for employer-sponsored health plans
• The employee-paid share of premiums for employer-sponsored individual accident plans such as hospital indemnity policies owned by the employee
• The employee-paid share of premiums for employer-sponsored dental, vision, or prescription drug coverage
• Health Care Flexible Spending Arrangements (HFSAs). An HFSA allows employees to establish a “bank“ of funds - using pre-tax dollars - that can be used to reimburse the employee for certain out of pocket expenses such as co-payments or plan deductibles
• Dependent Care Assistance Plans (often called DCAPs). A DCAP allows employees to establish a “bank“ of funds - using pre-tax dollars - that can be used to reimburse the employee for qualified dependent care expenses
• Group term life insurance up to $50,000 in policy face value
• Short-term and long-term disability plans
• Paid vacation and paid time off (PTO) arrangements
• §401(k) plans
• Adoption assistance program(s)
• HSA contributions made by employees

There are also some benefits that are taxable, but that may still be offered as part of a Cafeteria Plan. The following benefits are treated as cash by the IRS, but may be offered through a Cafeteria Plan as long as they do not defer compensation and they are purchased with after-tax dollars. These include:

• Group term life insurance on the participant (employee) in excess of IRS limits
• Vacation (paid time-off) pay for unused vacation days (only in same plan year)
• Group auto insurance
• Disability insurance (after-tax premium)
• Cash compensation (in lieu of benefits)

The purpose of offering these benefits within a Cafeteria Plan is to provide the employee with a single benefits package. Some of the benefits may be purchased with pre-tax dollars (qualified benefits) and some of the benefits may be purchased with after-tax dollars (taxable benefits). Healthcare Premiums The benefits most often included in a Cafeteria Plan are health insurance and the ability for the employee to pay employee-paid premiums with pre-tax dollars. Typically, the employer will pay a share of the monthly health care insurance premium and the employee will pay the remainder of the monthly premium. A primary purpose of a Cafeteria Plan is to allow employees to pay their share of insurance premiums on a pre-tax basis. For an HR Generalist, managing these enrollments is key to human resources compliance. Healthcare plans, also referred to as accident and health care plans by the Internal Revenue Code (the Code), that may be offered in a Cafeteria Plan include:

• Medical insurance including premium only plans, self or fully insured plans, indemnity plans, HMOs, PPOs, stop-loss plans, and Health Flexible Spending Arrangements (HFSAs)
• Vision care
• Dental insurance
• Specific disease coverage (e.g., insurance policies that pay a specified amount if the individual is stricken with cancer)
• Intensive care and hospital reimbursement policies
• Accidental death and dismemberment insurance
• Medicare supplement plans. All medical plan data must be handled per HIPAA privacy standards and labor law.

The regulations specifically include Premium Only Plans (POP). This term is typically used to refer to a fully insured health insurance premium where the employee pays a portion or the entire health care premium through the Cafeteria Plan. Health Flexible Spending Arrangements A Flexible Spending Arrangement (FSA) generally is a benefit program that provides employees with coverage that reimburses specified, incurred expenses (subject to reimbursement maximums and any other reasonable conditions). An expense for qualified benefits must not be reimbursed from the FSA unless it is incurred during a period of coverage. After an expense for a qualified benefit has been incurred, the expense must first be substantiated before the expense is reimbursed. A Health Flexible Spending Arrangement (HFSA) is a flexible spending arrangement whereby an employee elects an annual dollar amount to be withheld from the employee's salary by the employer, and said employer reimburses the employee for certain qualified medical expenses according to a specific set of rules and requirements. Other than a few exceptions, such as a family status change, the employee's annual election is irrevocable. Nor can participating employees elect to receive coverage only for periods during which they expect to incur medical expenses. There are limits to how much an employee can elect to his or her Health FSA per year as defined by FLSA or IRS wage standards. This limit does not apply to salary reduction contributions used to pay an employee's share of health coverage premiums, only to Health FSA contributions. Dependent Care Assistance Programs Child and/or dependent care plans, often referred to as Dependent Care Assistance Programs (DCAP), are another FSA offered through a Cafeteria Plan that are subject to the rules of Code §129. Under these rules, employees may exclude from their income amounts paid (by the employee or the employer) for certain types of day care services for certain children or other dependents. A key requirement for tax qualified status is that both spouses (single spouse, if unmarried) must be gainfully employed, or one spouse must be actively seeking employment or be a full-time student. The intent behind this requirement is that it allows the individual the opportunity to work while his or her child or dependent receives qualifying care.