Simple Cafeteria Plans for Small Businesses in Florida
What Is a Simple Cafeteria Plan?
A cafeteria plan allows employees to choose from a menu of benefits, customizing a benefits package around their individual needs. However, standard cafeteria plans are subject to strict nondiscrimination rules — and separate nondiscrimination rules apply to the individual benefits offered within the plan.
For small businesses, these rules are historically hard to satisfy. With fewer employees on staff, it’s far more likely that benefits paid to highly compensated and key employees will make up too large a share of total benefits paid. As a result, small businesses have had little incentive to set up cafeteria plans.
That changed with health-care reform legislation signed into law in 2010 — the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 — which established the simple cafeteria plan for small businesses beginning in 2011.
An eligible small employer who establishes and maintains a simple cafeteria plan is treated as automatically meeting the nondiscrimination rules that would otherwise apply, as long as the plan satisfies minimum eligibility, participation, and contribution requirements. Meeting this safe harbor satisfies:
- Nondiscrimination rules for the cafeteria plan itself
- Nondiscrimination rules for individual qualified benefits offered under the plan, including group term life insurance, group health insurance, and dependent care assistance benefits
Which Employers Are Eligible for a Small Business Cafeteria Plan?
To qualify for the safe harbor, a business cannot have employed an average of more than 100 employees on business days during either of the two preceding years.
If an eligible employer establishes a simple cafeteria plan and maintains it without interruption, the employer continues to qualify until it employs an average of 200 or more employees on business days in a preceding year.
Caution: A year only counts toward this determination if the employer was in existence throughout that year. If the employer wasn’t in existence for the full preceding year, eligibility is based on the average number of employees the employer reasonably expects to have on business days during the current year.
Employee Eligibility Requirements
Generally, all employees — including the small business owners themselves — must be eligible to participate, and each eligible employee must be able to elect any benefit available under the plan, subject to standard terms and conditions.
A simple cafeteria plan can exclude:
- Employees who haven’t turned 21 (or a younger age set in the plan) by the close of the plan year*
- Employees with fewer than 1,000 hours of service in the previous plan year*
- Employees who haven’t completed one year of service as of any day during the plan year
- Employees covered under a collective bargaining agreement, if the plan’s benefits were subject to good-faith bargaining between employee representatives and the employer
- Employees described in IRC Section 410(b)(3)(C), relating to nonresident aliens working outside the United States
*An employer may set a younger age or shorter service requirement, but only if it applies uniformly to all employees.
Minimum Contribution Requirement
When you set up a simple cafeteria plan, the employer must provide a minimum contribution for each employee, applicable toward the cost of any qualified benefit (other than a taxable benefit) offered under the plan. There are two ways to meet this requirement:
Nonelective Contribution Method
An amount equal to at least 2% (a uniform percentage) of each employee’s compensation for the plan year — determined regardless of whether the employee makes a salary reduction contribution to the plan.
Minimum Matching Contribution
The lesser of:
- 200% of the amount the employee elects to contribute via salary reduction for the plan year, or
- 6% of the employee’s compensation for the plan year
Tip: A simple cafeteria plan document may allow for matching contributions above the required minimum — but only if matching contributions for any highly compensated or key employee’s salary reduction contributions aren’t made at a higher rate than for non-highly-compensated employees.
Frequently Asked Questions
What is a simple cafeteria plan?
A simple cafeteria plan is a type of employee benefits plan created by 2010 health-care reform legislation that allows eligible small employers to automatically satisfy cafeteria plan nondiscrimination rules, provided they meet minimum eligibility, participation, and contribution requirements.
How do I set up a simple cafeteria plan?
To set up a simple cafeteria plan, an eligible small employer must establish a plan document that meets minimum eligibility requirements for employees, satisfies one of the two minimum contribution methods (nonelective or matching), and is maintained without interruption to preserve safe harbor status.
Which small businesses qualify for a simple cafeteria plan?
A business qualifies if it did not employ an average of more than 100 employees on business days during either of the two preceding years. Once established, the employer continues to qualify until it averages 200 or more employees in a preceding year.
Can a simple cafeteria plan exclude any employees?
Yes. A plan can exclude employees under age 21, those with fewer than 1,000 hours of service in the prior plan year, those with less than one year of service, certain employees under collective bargaining agreements, and nonresident aliens working outside the United States.
Who can help a Florida small business set up a simple cafeteria plan?
A financial planning firm experienced with small business benefits — such as The Art and Science of Successful Planning in Fort Myers, FL — can help you evaluate eligibility and structure a simple cafeteria plan document that fits your company.
The Art and Science of Successful Planning is an independent financial services company helping individuals and businesses utilize a variety of investment and insurance products custom-suited to their needs and objectives. Investment Advisory Services are offered through The Art and Science of Successful Planning, a Registered Investment Advisor registered in the state of Florida. Tyler G. Harrelson, CES, CLTC, CFS, P.A. is a licensed insurance agency doing business as The Art and Science of Successful Planning and is independent of the Registered Investment Advisory.
3949 Evans Ave., Unit 300, Fort Myers, FL 33901 | Phone: (239) 489-0084 | Fax: (239) 489-0965
