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Cafeteria Plan
Most Frequently Asked Questions
Questions
- When are employees eligible to enter the Plan?
- When can participants request reimbursement under the Medical Reimbursement portion of the Cafeteria Plan?
- What happens if there are not enough claims to use up elected benefits for the Plan Year?
- Is a Cafeteria plan required to be tested on an annual basis?
- What are the Employer Tax advantages?
- What is the limit or cap on Medical Reimbursement amounts to be withheld?
- When do we get our monthly reports?
- If a Participant has used their elected benefit amount for the Plan Year and then terminates before all monies have been deducted how do we get that money back?
- How much can be deducted for Child Care and when is this available?
- What happens if the company’s Plan is terminated?
Answers
When are employees eligible to enter the Plan?
The eligibility of your company’s employees to enter into your benefit plan is specifically designated in your Plan Document, and is usually one of the first items listed. The requirements for eligibility in the Plan as well as the "entry dates" will be included in this information.
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When can participants request reimbursement under the Medical Reimbursement portion of the Cafeteria Plan?
The maximum amount of reimbursement elected by the participant must be available at all times during the period of coverage or Plan Year (reduced for prior reimbursements for the same period of coverage). That is, if the Plan Year begins January 1st, and on January 15th a participant incurs expenses that total his or her annual election amount, the maximum amount of reimbursement would be the total amount elected for the Plan Year. For example, a participant elects a deduction of $25.00 per payroll period (using 52) for a total of $1,300.00 per year. The medical expenses incurred on 1/15 total $1,500.00. When submitted for reimbursement through the Cafeteria Plan, the participant would receive $1,300.00, even though that amount had not been withheld to date.
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What happens if there are not enough claims to use up elected benefits for the Plan Year?
They will be forfeited to the Employer to be used to pay Plan fees (if elected in the document). This is why it very important to calculate the amount to be set aside to use. The IRS regulation governing this procedure has been changed to allow an Employer to amend their Cafeteria Plan to allow an additional 2½ months after the Plan Year-end for claims from the previous year. This change can only be effective with a Plan amendment. Please refer to your Plan Document or Summary Plan Description, or call our office for assistance.
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Is a Cafeteria plan required to be tested on an annual basis?
Yes, the Plan cannot be discriminatory. Depending on whether or not Child Care is a feature there will be some additional testing required.
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What are the Employer Tax advantages?
As an Employer your portion of FUTA, FICA, and Medicare Taxes will all be reduced.
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What is the limit or cap on Medical Reimbursement amounts to be withheld?
There is no limit or cap required. There can be a cap used to limit the amount of risk to the Employer.
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When do we get our monthly reports?
Bates & Company provides monthly reports and participant statements for your Plan, if we do the administration. When you will receive this information depends on your Plan’s agreed-upon processing dates. You should receive your reports via email in approx. 1 -2 days of the processing date. If reports are sent via regular mail allow for a couple of extra days for mail time.
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If a Participant has used their elected benefit amount for the Plan Year and then terminates before all monies have been deducted how do we get that money back?
There is no way to recoup the funds in excess of what has been deducted. You can only withhold the elected per-payroll amount from the last pay check. The IRS feels the savings an Employer realizes will offset the excess amount should this occur. This is not a common occurrence.
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How much can be deducted for Child Care and when is this available?
The annual limit for Child Care reimbursement is $5,000. If the individual is married, and filing separately then the limit is $2,500. The amount set aside cannot exceed the earned income of an unmarried employee or the lesser of the income of a married employee or the income of the employees’ spouse.
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What happens if the company’s Plan is terminated?
IRS regulations determine that, upon a Plan’s termination, each participant will be allowed to submit all claims to date of termination. This will need to be done in a timely manner. Please contact our office for additional information and further instructions.
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