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Cafeteria Plan vs. ERISA Plan


Guest caseylaw
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Guest caseylaw

An employer has a self-funded medical plan, self-funded dental, self-funded short term disability, vision, group legal, group life and voluntary life. In drafting the SPD we referenced that the plan intends to qualify as a Sec 125 Cafeteria Plan. We used one wrap document with an adoption agreement. An attorney reviewing the SPD says it is not a Cafeteria Plan. Pre-tax salary reduction enrollment agreements are used for employee contributions. I am at a loss. The attorney wants wording for the Cafeteria Plan (client's attorney) and now I realize I've been operating on the premise that the plan is a cafeteria plan. I have reviewed EBIA's manuals and still don't know what to do. Can someone provide some guidance please!!

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A "wrap" plan is usually used to minimize audits and Form 5500 reporting. Otherwise each plan with assets in the trust has to be audited separately. The "wrap" doesn't necessarily make it a 125 arrangement.

Is there anything in the document other than the statement that it is intended to be a Section 125 arrangement? There should be separate "plan" provisions -- describing eligibility (everyone should generally be eligible and), which coverages the participant may choose among (e.g., some do not include LTD in a 125 plan -- but that appears N/A here), how employees make and change elections, etc. It should be clear whether employees can buy coverage outside the Section 125 arrangement (e.g., whether they can buy medical coverage on a month by month basis so that they can opt out at any time).

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Guest caseylaw

The SPD has all the plan provisions including eligibility and the option to opt out and receive cash in lieu of medical. They also have a FSA. I get the impression the attorney believes there should be a separate Cafeteria Plan document from the SPD. Thanks for your help! I'm confused.

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Yes, there should be a separate Cafeteria Plan document. It is a fringe plan and not an ERISA plan. As far as I know, the SPDs can be combined. The SPD is just the plan document in language that the participants can understand, with certain required stuff like the ERISA notice. So, it makes sense that there should be an underlying document.

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Guest caseylaw

Since most of the provisions of the Cafeteria Plan (eligibility, enrollment, coverages) are included in the SPD, should we just have another document related only to the Cafeteria Plan that would be a Plan Document as opposed to an SPD? Am I to assume we should leave out the sentence "this plan is intended to qualify as a cafeteria plan" in the SPD? So we would have a document for the cafeteria plan and an SPD that describes all the provisions, etc. for the component plans including ERISA rights?

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