starting an caf plan - FSA

[betheeg]

my employer is thinking about starting an FSA. I have little experience dealing with cafeteria plans. i know this will require a plan document, but what other concerns should I have? who handles the admin, recordkeeping of plan contributions? the employer? we are looking to include co-payments for office visits under the medical plan, dental, dependant care, vision, disability insurance, perscription costs...are all of these allowed? is there a maximum on claims? or a maximum on contributions to the plan?

anything else i am missing?

any help is much appreciated....thanks

[Guest Lugeguy]

Well it is a good idea to look before you leap.

Sec. 125 plans can be a great asset to a company, but can be somewhat complicated in the beginning

Part 1

Premium Only plan is simple and allows for certain insurance premiums to be deducted from gross pay before it goes to be taxed. These plans are simple and you do need a specific plan document. A TPA is usually not needed

Part 2

This is where you need a TPA

Dependent Childcare and unreimbursed medical.

The employee signs up to have this money taken out of their gross payroll before it is taxed.

The money is held in a trust account and when the employee submits a claim form with the appropriate receipts, the trust cuts a check to the employee.

A little more work, but a lot more complexity. Some TPA's now offer a debit/credit card system to eliminate some of the administrative work, but let me say you must not kid yourself about this type of plan. The company does have some exposure, because it must fund the claims submitted even if the employee has not had enough with held from payroll. Although you can get insurance coverage for that area also.

Good luck on your set up and spend some time looking at vendors for the service.

Bob Rock

[E as in ERISA]

Why do you say that you don't need a plan document for a premium only plan? Section 125(d) requires a written plan. It's also my understanding that "lack of plan document" is one of the main defects found by the IRS payroll tax auditors who are auditing 125 plans.

[Guest Lugeguy]

Please reread. It says you do need a plan document, but not a TPA. May be the way I phrased it.

[Lisa Hand]

Benefits Link yellow pages lists a number of Cafeteria Plan TPAs. Any of them should help with all of your initial questions without obligation and be able to get you additional information on these benefits.

[Guest Dick Boever]

Lugeguy

I'm afraid I must take exception to your statement "The money is held in a trust account." Paying Health FSA Benefits from separate funds is not a good idea, they should be paid from the general assets of the employer. See DOL Advisory Opinion 92-24A and/or EBIA Cafeteria Manual XXI. G. for a full explanation.