Simple cafeteria plans were created as part of the Affordable Care Act of 2010 to make it easier for small businesses to meet the applicable tax requirements for this type of employee benefit plan.
To qualify for a simple cafeteria plan, the plan must meet all of the following criteria:
- Eligible Employer. To be an employer eligible to sponsor a simple cafeteria plan the employer must have employed an average of 100 or fewer employees on business days during either of the 2 preceding years.
Growing Employers. Special rules apply to a ‘growing employer’, in the event that its employee population exceeds 100 employees. The employer can continue to sponsor a simple cafeteria plan; however, in the year following a year in which the employer employs on average 200 or more employees on business days, the plan must be converted to a classic cafeteria plan.
Aggregation Rules. Related employers, as defined in IRC Section 52(a), Controlled Group of Corporations, or Section 52(b), Employees of Partnerships, Proprietorships, Etc., Which Are Under Common Control, must be combined in determining employer size. In addition, leased employees, as defined in IRC §§414(n) or (o), are counted in determining employer eligibility.
- Minimum eligibility and participation requirements. Simple cafeteria plans must meet minimum eligibility and participation requirements. Specifically, all employees who had at least 1,000 hours of service for the preceding plan year are eligible to participate. Each employee eligible to participate in the plan may, subject to terms and conditions applicable to all participants, elect any benefit available under the plan.
Excludable Employees. Certain employees may be excluded from the minimum eligibility and participation requirements; these include:
- Employees who are under age 21;
- Employees who have been employed for less than one year;
- Employees covered by a collective bargaining agreement where health benefits have been the subject of good faith bargaining; and
- Nonresident aliens with no U.S. source of income.
- Contribution requirement. The employer is required, without regard to whether a qualified employee makes any salary reduction contribution, to make a contribution to provide qualified benefits under the plan, on behalf of each qualified employee. Qualified employees are those employees who are neither highly compensated individuals or key employees, as defined by the cafeteria plan rules, and who are eligible to participate in the cafeteria plan.
There are two types of employer contributions, as follows:
- The non-elective contribution is a uniform percent of compensation, but not less than 2% of the employee’s compensation for the plan year.
- The matching contribution is an amount that equals or exceeds the lesser of:
- Six percent of the employee’s compensation for the plan year; or
- Twice the employee’s salary reduction contribution.
The contribution method selected must be the same for all qualified employees, and must be a true employer contribution, i.e., it cannot include a salary reduction contribution at all.
When a plan meets these criteria then it meets the non-discrimination requirements for a cafeteria plan. These requirements are less complex than the requirements imposed on other cafeteria benefit plans.