Section 125 "Cafeteria" Plan

Congress passed a law which allowed employers to set up cafeteria or flexible plans. The purpose of the plan was to allow employees to pay for certain benefits, like dependent/child care, unreimbursed medical expenses, and insurance premiums with before tax dollars.

The government actually placed its seal of approval on a great way for the average taxpayer to save taxes! Under a full cafeteria plan, wages contributed by employees for employer sponsored benefit plans are not subject to federal, social security, or state taxes. The result is the employee's net take home pay increases by the amount of their tax savings.

The savings can range between a couple hundred dollars a year to a thousand, depending on the employee's contributions.

National Plan Administrators, Inc. (NPA) provides administration service for employers, and assists the employer in the design of their particular plan and provides a turn-key administration service.

Adoption Resolution. NPA provides an adoption resolution for the governing body to formally begin a cafeteria plan.

Plan Document. NPA assists the employer with the creation of the plan document, based on the plan design that the employer elects.

Department of Labor. NPA prepares the notification and forwards it to the Department of Labor.

Summary Plan Description . NPA prepares the Summary Plan Description and provides a copy to all employees.

Enrollment. NPA provides enrollment information for each employee.

Discrimination. NPA provides the discrimination testing to insure that the plan is in compliance with all applicable laws.

IRS Report. NPA works with the employer to prepare the annual Form 5500 report.

Successful cafeteria plans are those that the employer and the employees have real benefits as well as perceived benefits. One element that seems to be prevalent in all successful plans is excellent communication.

You must have good communication at enrollment.  Employees must understand how the plan works and all of the benefits available. Regular communication to participants of flexible spending accounts is a must; participants must know how their account stands at all times to have a successful plan.

NPA has designed enrollment materials that explain the cafeteria plan. Insurance representatives or enrollers explain the insurance benefits.

Participants in the flexible spending accounts (medical reimbursement and/or dependent/child care) may be provided a monthly statement detailing contributions, claims, and funds in their account.

The enrollment of the plan is coordinated with the employer. Typically, the cafeteria plan is enrolled by the insurance agent(s) who represents the insurance carriers that are providing benefits to the employees. Other enrollment scenarios are available. NPA counsels with the employer regarding the employer's objectives and designs an enrollment method that will function best for them.

NPA provides many specialized services for employers and employees depending on the needs. Pre-printed enrollment forms that have each employee's deductions can be provided. The employer would provide NPA with the deduction information for each employee in order to preprint the forms.

Whenever possible, NPA will transfer information to the employer in an electronic format This is extremely helpful to large employers for making payroll changes. NPA may be able to eliminate the data entry by the payroll department.

NPA processes claims on a monthly basis. Claim forms are furnished to each participant. A claim filing cutoff date is established that is acceptable to the employer. This should be a date between the 15th and 22nd of the month.  Claims are submitted to NPA. All claims will be processed on the cutoff date. NPA prepares the reimbursement check.  The reimbursement checks are delivered to the employer for signature and distribution with the payroll checks or can be sent directly to the employee. This process allows for a minimal disruption in the cash flow of the employees.

There is no minimum reimbursement dollar amount. Maximum dollar amount is equal to the current month allocation plus prior unused accumulation for the dependent/child care account. The maximum for the medical reimbursement account is the total amount for the plan year. Since we process monthly at the time funds are available, there is no disruption to employee cash flow for fixed expenses. NPA can provide monthly itemized account summaries.

NPA can use its check stock or that of the employer.  Check stock on the account maybe provided to NPA without signature authority. NPA's function would be to carry out the administration functions including record keeping and check processing and forward unsigned checks to the employer for distribution.

During the time that information identifying an individual covered by a plan is in the administrator's custody or control, the administrator shall take all reasonable precautions to prevent disclosure or use of the information for a purpose unrelated to administration of the plan.

The administrator shall disclose information described only:

1. in response to a court order;
2. for an examination conducted by the commissioner of insurance,
3. for an audit or investigation conducted under the Employee Retirement Income Security Act of 1974;
4. to or at the request of the insurer or plan sponsor; or
5. with the written consent of the identified individual or his or her legal representative.

Trade secrets, including the identity and addresses of policyholders and certificate holders, are confidential, except the insurance commissioner may use that information in a proceeding instituted against the administrator. The plan sponsor is entitled to a continuing access to these books and records sufficient to permit the insurer, plan, plan sponsor to fulfill contractual obligations to insureds and plan participants.

The agent on the Proposal is responsible for all enrollment. We have enrollers available on a per diem or commission split basis.