The above diagram illustrates example of the benefits that an Employer can include in a Cafeteria Plan.
However, examples of a few benefits that are exempted from Cafeteria Plans are:
- Federal Income Tax,
- Social Security Tax,
- Medicare Tax,
- Federal Unemployment (FUTA) Tax, and
- State Income tax.
Education assistance is not a part of cafeteria plan.
For full scope of approved and exempted benefits please consult with you Human Resource or Benefits Administrator. Also, a key requirement of traditional cafeteria plans is that they must undergo annual non discrimination testing.
Eligibility of Cafeteria Plan
A simple cafeteria plan
is one that enables Employers with 100 or fewer Employees to bypass annual non-discrimination testing, if the following requirements are met:
- Employer size – You must have 100 or fewer employees during either of the 2 previous years. Once the Simple cafeteria plan is established, company will remain eligible until it employs 200 or more employees. At the 200-employee mark, the company is no longer eligible for this plan.
- Employee eligibility and participation – Generally, all employees with at least 1,000 hours of service during the preceding plan year must be allowed to participate in the Simple cafeteria plan. Certain employees are excluded from this requirement, such as employees under the age of 21 or those with less than 1 year of service. All eligible employees can avail any benefits provided under this plan. If there is any limitation, it must apply to all employees.
- Employer contributions – The employer must make contributions toward the benefits of each eligible employee who is not an HCE (Highly Compensated Employee) or key employee. Employer contribution must be at least 2% of the employee’s compensation for the plan year, or 6% of the employee’s compensation for the plan year or twice the employee’s salary reductions — whichever is smaller. Separate rules apply to employer contributions for HCEs and key employees. Please refer to your Benefits Administrator for specific information that applies to your company or yourself.
Cafeteria Plan Types