Cafeteria plans are employee benefit plans authorized by the IRS under Section 125 that offer an employer both cost management benefits and employee relations benefits. They allow employers to contribute toward employees’ benefit packages in the form of a credit which can be design to suit the needs of the employer and employee population (typically designed as a monthly credit). The employer determines their annual contribution based on its changing financial situation.

The defined contribution from the employer may then be used by the employees to purchase benefits from an extended menu. This allows employees to tailor their coverage to suit their individual needs. The employee may elect to pay for the remaining difference between the credit and the actual cost of their benefits with pre-tax dollars, exempt from Federal, State, and FICA taxes.

Employees appreciate the empowerment that a cafeteria plan affords them, while employers appreciate their cost containment aspects.

Fiscal Consistency – Cap Expenses

The company can define a fixed budget expenditure. This will control benefit costs. The amount of the credit you give each employee can be based on a number of different factors. The following are a few examples:

• Location / Division Number of Hours Worked/ Family Status/ Type of Insurance Elected/ Length of Service or as a Percentage of Salary
• A Flat Amount for All Employees
• Participation in specified medical plan(s)

Control Future Increases in Benefit Costs

Since it is a defined contribution plan, it provides a number of opportunities for controlling future increases. Its your determination if you want to increase your expenditures, not the insurance companies decision.

Tax Savings to Employees

Every dollar contributed by employees into the cafeteria plan is taken from the gross wage, saving the employee Federal, State, and FICA taxes.

Tax Savings to Employers (shift costs to the Federal Government)

Payroll deductions above the employer credit are taken out of employees’ paychecks on a pre-tax basis (excluded from Federal, State and FICA taxes). Therefore, the employer does not have to pay the matching FICA at 7.65% to the Federal government on the amount that is paid for by the employee.

Increase Employee Awareness

Cafeteria plans are an educational tool that increases employees’ awareness of their benefits and also gives them an appreciation of their total compensation package. Because employees are designing a plan to fit their individual needs, they perceive the plan to be better even though your expenditures may be constant. This will promote productivity and decrease turnover.

Greater Variety of Benefits

Offering a cafeteria plan gives employers the ability to offer requested benefit lines, including but not limited to, dental, short term disability, long term disability, vision, flexible spending accounts, group term life, 401 (k) distribution, and the buying and selling of vacation days.

Availability of Coverage

The credit-style cafeteria plan offers your employees voluntary group coverage and pricing that would not be available to them in the individual market place. These can be added at no additional cost to the employer.

Increases Employee Satisfaction

The flexibility of the credit plan design structure allows employees to select the benefits that will suit their needs. Employees will be more satisfied with their benefit package because they design it themselves by electing their desired level of coverage.

Provides Employers with an Advantage for Recruiting

If an employer can offer a comprehensive benefit package containing options that will suit the diverse needs of individuals in the workplace, it will be easier to attract and retain the employees essential to the success of the company.

Employee Communication and Enrollment

Because each cafeteria plan is custom designed to meet the needs of an employer and their employees, it is extremely important that the plan is well-communicated to all employees. A total communication program may include:

• Announcement letters to pique employee interest
• Flyers or payroll stuffers
• Customized enrollment forms and verification statements (verification statements optional)
• Assist clients with development of presentations to inform employees of plan benefits and procedures
• On site group meetings to explain the cafeteria plan and to answer questions
• Individual consultations with employees via toll-free number to insure proper understanding of the program
• Training your personnel to handle ongoing plan communication
• Enrollment kits and brochures highlighting the plan
• A customized summary plan description and plan document

Once the enrollment process is complete, P&A handles inputting all elections. We will provide your payroll department with a listing of the amounts to be withheld for each employee. We can also provide a variety of reports to your Human Resources Department showing, which benefits were elected by whom, so that the correct insurance company list bills may be reconciled. The work of your Human Resources Department will consist of no more than the following:

• Notify P&A of new hires, changes, lay-offs, etc.
• Maintain correct payroll deductions
• Remit any spending account contributions to P&A

Administration

The installation of multiple carriers with additional lines of coverage can substantially increase an employer’s administrative responsibilities. By outsourcing these responsibilities to P&A, you will reduce time spent on the administration of benefits, therefore, increasing staff efficiency. On going administration includes:

• Customized enrollment and verification statements for newly eligible employees
• Discrimination testing
• Form 5500 filing with the IRS (if required)
• Imputed income calculations

Our Basic Services Include

• Internet Enrollment Capability (Flex plans)
• Account status and balance inquiries via the Internet
• 24 hour Interactive Voice Response system for account balance inquiries (English & Spanish languages)
• Assigned knowledgeable and experienced plan administrator
• Compilation of enrollment data and generation of report for payroll
• Perform non-discrimination tests required by Section 125 to insure plan compliance
• Review of claims to determine eligibility of expenses
• Issue checks weekly or as frequently as the employer desires – check stubs include current account summary
• Periodic Statements sent to participants regarding account status
• Management reports that provide data on plan utilization
• Assistance with new employee enrollments and other service as required throughout the plan year
• Cash flow management reports on the plan
• Bank reconciliation reporting package
• Distribution of employee wake up letter; approximately 45 days prior to plan year end to help minimize participant forfeitures
• Consolidated year end statements and required government filings

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