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SIMPLE Cafeteria Plan


Belgarath
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H?ave never really seen much on these, probably because I haven't looked. I'll have to do some reading! But suppose you had a business with only 5 employees, who only wants to make employer contributions to an HSA for their employees, because they (employer) can't afford to pay insurance premiums. All employee/insureds are under a HDHP.

Is there any reason why a "SIMPLE" 125 plan wouldn't be appropriate here? Employees would presumably also contribute to the HSA.

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After looking into this a bit, it seems to me that the easier route is for them to simply make the employer contributions to the HSA's, without the fuss of setting up a cafeteria plan. They have to satisfy the "comparability" rules, but that doesn't appear to be an issue. Am I missing anything?

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That's not my understanding, albeit I'm not remotely passing myself off as any kind of expert! But a simple internet search turns up many sources, that seem reputable, that say an employer may contribute, tax-free, to an employee's HSA EITHER through a 125 plan OR outside a 125 plan. The trade-off is that if not through a cafeteria plan, the employer contributions must satisfy "comparability" rules.

If I'm wrong on this, can you provide any citation/guidance? Thanks!

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Belgarth, employers can make tax-free contributions either way.  If made without a 125 plan the contributions must meet the comparability rules, which is simple.  Same dollar amount or same percentage of deductible for ee’s in same coverage category.  If made thru a 125 plan there are non-discrimination rules.  Based on the information you have supplied, it does not appear to make sense to use a 125 plan.

please see www.irs.gov/publication/p969.    

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