Cafeteria Plans Flashcards
1
Q
Cafeteria Plans
Employee Advantages
A
- Select benefits most appropriate to their personal needs
- Direct savings because benefit expenses are paid on tax-favored basis
- Not subject to federal income, FICA, FUTA tax
2
Q
Cafeteria Plans
Employer Advantages
A
- No FICA/FUTA tax on amounts contributed to cafeteria plan
- Expenses tied to payroll expenses will be reduced
- Help EEs gain awareness of value of benefits
- May lead to wise EE decisions and therefore greater appreciation of benefits and EE satisfaction
3
Q
Cafeteria Plans
Employer Disadvantages
A
- Ongoing cost of admin and operation
- Full amount of benefit must be available during entire year regardless of how much EE has actually contributed
- Adverse selection of benefits
- Subject to complex coverage and nondiscrimination testing
4
Q
Cafeteria Plans
Employee Disadvantages
A
- Benefit elections must be made prior to beginning of year and are irrevocable
- Use it or lose it rule
- May be unfavorable to pay for dependent care through cafeteria plan
- Because FICA tax is not paid, EE’s SS benefits may be reduced slightly
5
Q
Cafeteria Plans
Types of Cafeteria Plans (List, Define)
A
- Premium Conversion = no ER contributions and allow EEs to pay insurance on tax-favored basis
- Flexible Spending Account = EE has choice between cash and covered benefit
- Full Flex Plan = Cash/Credit system used to fund cost of selected benefits
6
Q
Cafeteria Plans
Written Plan Requirements
A
- Benefit Descriptions
- Eligibility and Participation rules
- Election procedures
- Contribution manner
- Max ER contributions available
- Plan year
- Nondiscrimination testing rules
7
Q
Cafeteria Plans
Qualified Benefits
A
Qualified = not taxed
- Accident/Health Coverage
- ER-provided group term life ins. (under $50k)
- ER-provided dependent care assistance
- 401k
- HSA contributions
8
Q
Cafeteria Plans
Taxable Benefits
A
- Cash
- PTO
- Group term life > $50k
9
Q
Cafeteria Plans
Non-Permitted Benefits
A
- Educational assistance
- Medical savings account
- LTC
10
Q
Cafeteria Plans
Negative and Evergreen Elections
A
- Negative = automatically enroll in certain benefits unless opt out
- Evergreen = automatically continuing same prior benefits unless opt out
11
Q
Cafeteria Plans
Changes in Coverage
A
Change in:
- Martial status
- Number of dependents
- You/Spouse’s Employment status
- Residence
