Is there a maximum salary reduction amount in a cafeteria plan, other

[MarZDoates]

Is there a maximum salary reduction amount in a cafeteria plan, other than the $5,000 maximum for child care? I have an employee who wants to run $10,000 through health care reimbursement.

Do cafeteria plan salary reductions tie into salary reductions for 401(k)?s Do we have to aggregate cafe plan reductions w/ 401(k) to make sure we don't exceed 402(g) limits or 415 limits?

Thanks.

[QDROphile]

How would you like your employee to elect $10,000 for the medical FSA, incur $10,000 of expenses in January and have them reimbursed, then quit in February. You would get maybe $1,666 from the employee. The rest comes out of the employer's pocket. That is your problem, not a statutory limit or coordination with a retirement plan.

[Mike Preston]

You do not aggregate cafeteria plan elections with salary deferrals for any purpose. Nor do you have to be concerned about 415 limits. You do have to watch how the cafeteria plan elections are handled for purposes of reporting compensation to the Plan Administrator of any qualified plans you may have, though, as plans can treat cafeteria plan elections differently.

QDROphile is right that the decision as to limits is something that impacts the amount of risk that an employer is forced to bear.

But if $10,000 is desirable and the employer is willing to accept the risk, and the plan allows it, and the employee elects it.......

[MarZDoates]

I neglected to mention in my first post that this is an HCE. In researching the non-discrimination rules, I see that a cafe plan can not discriminate in favor of HCEs. Regarding the "25% Test"...does this mean that if the HCE does want to run $10,000 through the cafeteria plan, the total amount of benefits to the non HCEs would have to be $40,000?

Sorry, I am weak in this area.

[papogi]

The 25% concentration test applies to key employees, not HCE's. I know they often mirror each other, but not always. If you determine that this HCE is key, then, yes, no more than 25% of the total non-taxable benefits can be provided to all key employees. If a 125 plan fails this test, all key employees must be taxed on their option to receive cash or other taxable benefits in place of non-taxable benefits. If all key employees have a total of $50K being run through the 125 plan, then the non-key employees need to have at least $200K going through the 125 in order to keep the key employees safe.

[MarZDoates]

Thanks, Pap! So what if this HCE is not a Key Employee...then what kind of non-discrim do I need to look at?

[papogi]

For HCE's you have to look at non-discrimination with regards to benefits (benefits should be available to employees on a non-discriminatory basis, and I like the Section 89(e) math to determine non-discrimination with regards to utilization, although you'll see differing opinions on this due to the lack of IRS guidance), and eligibility (Fair Cross-Section test: Basically, if you have a high concentration of HCE's, then the participation by NHCE's must be high to pass, whereas a low concentration of HCE's allows lower participation by NHCE's).

[E as in ERISA]

Another thing to consider: Most people don't plan to have $10,000 of medical expenses during the year -- they usually meet their deductibles, etc. under any insured plan at a much lower level than that. Certainly there are many situations in which these expenses might qualify for reimbursement. But we also see a lot of situations on these boards where employees are seeking reimbursement through their FSAs for expenses that don't qualify. You might want to find out what the person is planning on getting reimbursement for and make sure that it will be paid by the FSA.