A SIMPLE cafeteria plan is generally available to smaller businesses with 100 or fewer employees who are not all owners. It is a savings account that employees can use to spend their pre-tax earnings on qualifying health and dependent-care expenses. It is a very simple plan and can be a great alternative to a traditional 401k if your company doesn’t offer one.
Before moving ahead, let us see what a SIMPLE cafeteria plan is?
SIMPLE Cafeteria Plan
The simple cafeteria plan is an alternative to the more complicated cafeteria plan. It is a type of cafeteria plan that is provided by an employer to employees. A cafeteria plan is an employee benefit that allows an employee to choose from a variety of benefits or services to determine the amount of money that they will contribute towards their health insurance coverage. The employee can choose to opt-out of health insurance coverage if they so choose.
If you are not familiar with the concept of a cafeteria plan, in a nutshell, the cafeteria plan option is an alternative to a Flexible Spending Account (FSA) that allows you to control the amount of money you spend on health care in a given year. It is a tax-free account that helps you save money for future health care expenses (such as copayments, coinsurance, deductibles, long-term care insurance, etc.) through pre-tax contributions.
A cafeteria plan is a method used by an employer to offer its employees a choice of benefits in lieu of receiving cash compensation. Typically, employees are given a certain amount of money from their paycheck on a pre-tax basis to spend on approved benefits. These benefits are typically in the form of goods or services.
The Basic Requirements to Qualify for a Simple Cafeteria Plan
The basic four requirements to qualify a simple cafeteria plan are:
Employer size: The organization must have hired an average of a hundred or fewer workers in either of the two previous years. Specific rules apply to new organizations and certain growing organizations with fewer than two hundred workers.
Eligibility: In general, all workers with at least a thousand hours of assistance during the previous plan year must be qualified to participate in the plan.
Advantages: Each worker who is eligible to participate in the plan must be able to choose any qualified benefit available under the plan.
Required organization contributions: Each worker who is not a key worker or highly paid must get a true employer contribution of at least:
- 2% of the worker’s compensation for the program year, or
- the lesser of 6% of the worker’s compensation for the program year or twice the worker’s salary reductions.
Final Words
Simple Cafeteria Plans is a little more complicated than the name suggests, but the qualified organizations that prefer to take benefit of this new Cafeteria Plan will evade the burden of ongoing non-discrimination testing.
To know more about the SIMPLE cafeteria plan, attend the Compliance Prime webinar.
