How does a Section 125 Cafeteria Plan plan work?
contributions to the cafeteria plan are usually made pursuant to salary reduction agreements between the employer and the employee in which the employee agrees to contribute a portion of his or her salary on a
pre-tax basis to pay for the qualified benefits. Salary reduction contributions are not actually received by the participating employee. Therefore, those contributions are not considered wages for federal income tax
Who may receive benefits under a Section 125 Cafeteria Plan?
The plan may make benefits available to employees, their spouses and dependents. It may also include coverage of former employees, but cannot exist primarily for them. While sole proprietors cannot directly
participate in the plan, they may legitimately employ their spouse and offer the spouse the benefits of the plan as long as the plan is offered on a non-discriminatory basis.
In regards to Section 125
Cafeteria Plans, non-discriminatory basis refers to making the benefits available to all eligible employees under the same terms, and that the plan does not favor highly compensated employees, officers or owners.
The employed spouse may be considered a highly compensated employee and as such their contributions to the plan may be limited to the same terms as all eligible employees.
A partnership operates much like a
sole proprietorship. While the partners cannot directly participate, they may employ a spouse who in turn may receive benefits. The same non-discriminatory rules apply to spouses of partners as it does to the spouse
of a sole proprietorship.
For more information about Section 125 Cafeteria Plans for your business and employees, consult
with a commercial insurance specialist from
Alliance Insurance Agency Services, Inc.
Alliance Insurance Agency has offices in Metairie and Covington
and serves businesses throughout the New Orleans area!
Commercial Insurance Specialists are on staff at both our Metairie and Covington offices!