Section 125 Cafeteria Plan – Premium Only Plan is governed by Section 125 of the IRS tax code. Employees enrolled in Section 125 Cafeteria plans can set aside insurance premiums and other pretax that they can use for certain qualified medical and child care expenses since more participants in the program equate to more tax savings for the employer.
To qualify as a Section 125 Cafeteria Plan, the employer’s plan must include:
At least one taxable benefit option; and,
At least one qualified pre-tax benefit option
The Section 125 Cafeteria Plan – Premium Only Plan is an option for employers who wish to provide an additional benefit to their employees without giving any other form of coverage. It is the only means for an employer to provide coverage for the family members of employees without providing other forms of insurance, including a general insurer. The plan may make benefits available to employees, their spouses and dependents. It may also include coverage of former employees but cannot exist primarily for them. The employer contributes to each employee’s plan to promote increased participation by those who still need to be in the section 125 plan.
We offer a way for you to control the cost of employee benefits and enjoy substantial savings. Cafeteria Plans or POP Plans are governed by Section 125 of the IRS tax code. The employer saves on the amount of matching FICA tax the employee has withheld from their paychecks on a pretax basis while the employee saves Federal, State and FICA taxes. Implementing a Cafeteria Plan is a win-win benefit for everyone.
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Section 125 FAQ
What are the advantages of owning Section 125 Cafeteria Plan - Premium Only Plan?
- The most significant advantage of a POP Document is its tax-advantaged status.
- When you pay for insurance through a Section 125 POP plan, the premiums are deducted from your paycheck on a pretax basis – that means they come out of your taxable income, reducing both your income tax and FICA taxes. It's like getting an instant pay raise!
- Section 125 cafeteria plan allows an employee to reduce the gross income amount used to calculate Federal, Social Security, and some State taxes. This amounts to a savings of between 25% and 40% of every dollar they contribute to the plan.
- Remind your employer that he gets this benefit too – his matching share of FICA and Medicare are reduced, as are FUTA and possibly state unemployment taxes.
- Employers can increase their employees' share of insurance premiums without negatively affecting their take-home pay.
- Employers need to ensure the rules outlined in the plan document and SPD are followed. Failure to administer a plan in accordance with the written terms of the plan and the Internal Revenue Code can result in the loss of the benefits' pretax status.
New employees must receive a copy of their plan sponsor’s latest Summary Plan Description within 90 days after becoming covered by the plan. Plan sponsors are not required to file a POP Document with the Department of Labor (DOL), although they are required to provide it to DOL upon request.
What are the late fees and penalties?
- The maximum criminal penalties for ERISA include fines of up to $100,000 and possibly ten years in jail. Businesses charged with ERISA violations can face criminal fines of up to $500,000, in addition to any civil liability.
- Plan sponsor may be charged $110/day if it does not provide plan document, SPD, or Summary of Material Modifications (SMM) within 30 days of individual's written request. Failure to furnish plan-related information requested by the DOL carries a penalty of up to $161 per day, not to exceed $1,613 per request. Under ERISA, plan administrators must furnish to the DOL, upon request, any documents relating to the employee benefit plan.
What documents are required for a Cafeteria Plan?
- A current Summary Plan Description (SPD) available to all plan participants
- A current POP Plan Document
What benefits are offered under a Section 125 Plan?
- Accidental death and dismemberment;
- Short- and long-term disability;
- Wellness plan
- Group voluntary life
- Adoption assistance
- Voluntary life
- Voluntary dependent life
- Voluntary AD&D
- Voluntary LTD
- Voluntary STD
- Voluntary long-term care
- Voluntary critical illness and cancer
When do I have to update my documents?
The plan document needs an update whenever there is a change in your plan or in tax and health care law that requires an update.
How does a Cafeteria Plan work?
Employer contributions to the cafeteria plan are usually made pursuant to salary reduction agreements between the employer and the employee in which the employee agrees to contribute a portion of his or her salary on a pre-tax basis to pay for the qualified benefits.