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Hi All, This forum seems by far the most well educated on the subject of cafeteria plans. Would you read my letter to my employer and suggest changes or point out discrepancies? Right now my employer pays all health employee health insurance premiums, 50% of spouse and dependents, and remaining premium is paid after tax as a payroll deduction by the employee. I happen to live in the state with the highest premiums in the US, so these are significant costs for us. Why it’s in Company X's best interest to use a section 125 SIMPLE cafeteria plan to compete with benefits offered by larger organizations and optimize company cashflow. Section 125 of IRS code establishes an employer plan document which allows non-owner level employees earning less than 120,000 / year (special rules for those over that threshold) to pay for employer sponsored benefits in a way that is excluded from their gross income. Qualified benefits already being offered by Company X which would qualify for the cafeteria plan include: Employee paid group health insurance premiums Employee paid group term life insurance premiums (excluding coverage for spouse and dependents) AD&D employee paid insurance premiums (excluding coverage for spouse and dependents) It is highly desirable for employees to pay for these benefits on a pre-tax (or excludable) basis as it can reduce their costs by for example 32.65% (25% marginal income tax rate plus 7.65% payroll tax). It is also highly desirable for an employer to enact such a benefit plan as these are before payroll tax, and a 7.65% savings can be realized as well. Being able to offer these benefits on a pre-tax (or excludable) basis can also be used to increase participation and lower rates. Minimum employer contributions to the SIMPLE cafeteria plan are 2% of an employee’s compensation, which the employee can elect to either convert to cash or use towards employer sponsored benefits. Other qualified benefits which can be included in such a plan include: Healthcare Flexible Spending Account ($2600/year) Dependent Care Flexible Spending Account ($5000/year) Employer Sponsored 401(k) For example: Company X establishes a section 125 SIMPLE cafeteria plan paying 5% of an employee’s compensation. 25 employees at Company X qualify and are able to utilize 80% of the benefits offered, the average employee compensation is 70,000/year (66,500 pay, $3,500 cafeteria benefits/cash). This equals $70,000 in employee paid benefits. The employees would save $914.20 each and Company X will save $5,355 per year in payroll tax. I acknowledge this is a small sum, but if there’s room to grow the benefits utilized by Company X employees, at our current scale of employment I estimate Company X would save $1,000 per percentage point of benefit utilization (this can be either employee or employer contributions). Personally, I utilize 12% of my gross income towards employee paid health insurance premiums, so I could elect to contribute 10% towards these premiums and utilize 2% of employer contributions to save $3,183 per year in taxes on premiums while saving Company X $746 in payroll taxes. If 25 employees were to follow this same strategy at the 12% level, it would save Company X $18,650 in payroll taxes. Thank you!

The only advantages I can think of are: 1. No or minimal basic life is offered so buying voluntary life through cafeteria plan lets you take full advantage of the $50,000 non-taxable coverage; or 2. The voluntary life rates are higher than the imputed income rates so tax on imputed income is less than the tax paid when buying voluntary life with post-tax dollars. Am I missing something?