Cafeteria Plans

[Guest JFBEARB]

Are employers required to contribute to the benefits under a cafeteria plan?

Is there a problem with only employees paying premiums for benefits under a cafeteria plan?

We have a client, whose insurance agent indicated that the employee only funding was not legal? Any idea about this?

[mroberts]

Why have a cafeteria plan if the employer is not funding any portion on the premiums? It very well could be illegal simply because it doesn't make any sense.

[Guest JFBEARB]

The cafeteria plan would allow the employees to have the benefits and at the same time have their premium paid on a pre-tax basis. This would help the employees save taxes.

The employer would be helping the employee obtain the benefit, by having the cafeteria plan, but he would just not help fund it.

Why would this be a problem?

[mroberts]

When I hear the term cafeteria plan, I always think of the larger picture of employers providing their employees with a lump sum of money and the employees picking and choosing the benefits that best suit them. If you are talking about a Section 125 plan or POP plan, then yes the employer can offer this without offering any funding for the plans. Just realize that for each line of coverage the employer may not getting the necessary participation requirements to secure the coverage.

[papogi]

I can't think of any legal reason the employer would be forced to pay a share, either. By doing it this way, yes, the employee can use pre-tax money for the group coverage. Since the entire cost of health coverage is going through the employee's payroll, the employer saves a bunch in taxes, FICA, FUTA, etc. mroberts' warning about participation requirements is a good one. Even with the tax savings, it's likely many employees will opt-out and go to spouse coverage, or some other coverage that might be cheaper even with after-tax dollars. All the opt-outs will negate some of the employer's payroll savings. The greater the rate of opt-outs, the greater the reason for the employer to start kicking in some of its own money.