FSA basics: cafeteria plans
Cafeteria plan overview
Your
PriorityFSA
SM plan falls underneath a cafeteria plan (or a Section 125 plan). These are plans that allow you to deduct funds tax-free right from your employees' paychecks, saving them on income taxes and saving you on your FICA, FUTA and Workers' Compensation premiums. Cafeteria plans have 4 major components:
- Pre-tax premium program - Employees are allowed to use pre-tax dollars to pay healthcare and other premiums.
- Health flexible spending arrangement (FSA) - Employees can set aside pre-tax dollars to pay for medical expenses. This also includes limited purpose FSAs, which allow members who are eligible for a health savings account to participate in an FSA.
- Dependent care assistance program (DCAP) - Employees can set aside pre-tax dollars to pay for child care.
- Health savings account (HSA) - Employees can make pre-tax contributions to pay for health care expenses.
If you offer a cafeteria plan, you're required to have a plan document and summary plan description as a reference for plan requirements. You also must run on a 12-month plan year. Exceptions to the 12-month plan year requirement may be made if:
- It's your first plan year
- You change insurance carriers
- You're involved in an acquisition or merger
Cafeteria plan eligibility
Only employees are eligible to participate in a Section 125 cafeteria plan. These plans aren't available for the self-employed, sole proprietors, partners in a partnership, 2% shareholders and corporate directors.
Discrimination testing
If you offer an FSA or other cafeteria plan, you're required to undergo discrimination testing to ensure you're offering similar benefits to all employees. Priority Health does not administer discrimination testing. It's something you must take care of on your own. Talk to your legal counsel for more information.
