Employee Flexible Benefit Plans
9/1/2003
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Employee flexible benefit plan, sometimes also called “cafeteria plan” is a tool for employers to attract talented employees and also saves taxes. It actually offers tax saving opportunities for employees, too.
Generally, those plans allow participating employees to choose between taxable cash or some non-taxable qualified benefits such as group life insurance, medical and/or dental expense insurance, child care, etc.
For employers, the plans offer opportunity to save FICA (I.e., social security and medicare taxes), FUTA and SUI (I.e., federal and state unemployment taxes, respectively) while expanding employee benefits and attract and retain people.
For employees, the plans let them to select benefits most suitable to individual needs, use pretax dollars (thus save income taxes) to obtain benefits at much more attractive cost (comparing with non-group rates for some benefits) and pay less FICA taxes.
Cafeteria plans can be designed from simple “premium-only” to full-blown flexible benefit plans including flexible spending accounts. Premium-only plans simply allow employees to use before-tax dollars for plan contribution. But flexible spending accounts allow employees to defer before-tax dollars to pay for medical expenses and dependent care.
But an employee needs to exercise caution when electing to defer his or her pre-tax money. “Use it or lose it” rule will make anyone not using up the deferred amount to forfeit the balance by the end of the plan year. (Employers can use forfeitures for plan administration costs or some other purposes).
All flexible benefit plans are subject to nondiscrimination rules. They also demand plan documentation, annual enrollments, tracking claims and benefit payments, and the annual filing of 5500 report.
If you want to find out more about how the "cafeteria plan" might benefit your business, please feel free to contact us any time for a 30-minutes free consulting.
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