New Regs for Cafeteria Plans

New proposed regulations for Cafeteria Plans become effective January 1, 2009. We highlight some of the new regs below.

Contributions must be excludible from the employee’s gross income in order to be a qualified benefit of a Section 125 Cafeteria Plan. Examples of qualified benefits include group-term insurance, dependent care assistance and adoption assistance programs. An employee can now be reimbursed through the Cafeteria Plan for individual health and accident plan insurance premiums.

Discrimination testing requirements for eligibility, contributions and benefits are now clarified and must:

•           be in writing and describe all benefits;

•           list the rules for eligibility to participate;

•           list the procedure for making elections;

•           state that all elections are irrevocable;

•           state how employer contributions can be made; and

•           specify the maximum amount of contributions for the plan year.

After all reimbursements have been made for the plan year, any remaining balances in the plan can be used to offset administrative expenses. Such expenses could include TPA fees or plan losses experienced by terminated employees spending more than they contributed prior to their terminations.

Scholarships, educational assistance and Long Term Care insurance cannot be included in a Section 125 Plan.

A newly eligible employee can make an election within 30 days of his/her plan entry date and new regulations allow new hires to claim benefits dating back to their dates of eligibility.

It is not necessary to restate an existing cafeteria plan document if the plan has been kept up-to-date with current laws and regulations. However, plans established prior to 2000 which have not been amended should be restated. If needed, Swerdlin can prepare amendments or restate your cafeteria document.

If we can help you, or if you have any questions, please call Cynthia Navan-Clark at 678.775.5551.