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Simple Cafeteria Plans and the ACA

An eligible small employer, which is generally fewer than 100 employees during the preceding two years, is provided with a safe harbor from non-discrimination requirements for cafeteria plans, including benefits for group term life insurance and benefits under a self-insured medical expense reimbursement plan and benefits under a dependent care assistance program.

Safe Harbor for Simple Cafeteria Plans Under ACA

Under the safe harbor, a cafeteria plan meets the non-discrimination rules if it satisfies specified minimum eligibility participation and employer contribution requirements.

  1. For new employers not in existence during the preceding calendar year, the IRS states eligibility is based on the number of employees reasonably expected. For growing employers the rules extend eligibility to the year following the first year the employer employees and average of 200 or more.
  2. Contribution requirements under the simple cafeteria plan: The employer must contribute either a uniform percentage, not less than 2% if employee compensation for the plan year. This method is called the non-elective contribution method. Or, it can be an amount that equals or exceeds the lesser of 6% of compensation, or twice the employee’s salary reduction contribution. And this is called the matching contribution method. So, you can see here, equals or exceeds the lesser, 6%, or twice the employee’s salary reduction.
  3. Participation eligibility rules: Employees with at least 1,000 hours of service during the preceding year must be eligible. Automatically excluded are self-employed individuals, partners of a partnership, 2% or greater shareholders of an S corporation.
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