PEO cafeteria plan(s)?

[Guest aearle]

I would appreciate any feedback on the following questions:

1) Since a PEO is a co-employer of a large number of companies, do all of the companies affiliated with the PEO have to live under one Sec 125 plan? (I assume all of the companies are "affiliated companies" under Sec 125.)

2) Can a PEO member company opt out of the PEO's Sec 125 plan and have its own? If yes, then could each member company operate under a separate Sec 125 plan? (Again, I assume this MIGHT be permissable if the PEO as a whole can pass nondiscrim tests.)

3) Alternatively, could a PEO have several Sec 125 plans with different plan years where each member company would choose which plan year cycle they prefer and be housed under that plan?

Just trying to think through if there are ways for PEO members to have more flexibility than just adhering to one plan/plan year. It seems like this could be a sticky area.

Thanks for your input!!

[GBurns]

I do suggest that you seek a response in writing (not the agent's word) from a few of the potential providers both medical and supplemental..

From what I have been seeing over the last 2 years, AFLAC, Colonial, Allstate (American Heritage) and American Fidelity have all been rewriting their previous PEO plans to be the employer's (the client) plan. Most of this activity has been on the supplemental side but I have also seen BCBS Illinois and Florida do the same.

If the insurers won't write business as the PEO's policy that should tell you what is what.

It does not matter what the 125 Plan Document says if there is no coverage available under it.

[Guest aearle]

Thanks for your response. However, I don't think my question(s) were answered. How about this example:

A PEO offers 5 medical options to their client companies and 2 dental options. They also offer a cafeteria plan for the pre-taxing of premiums and offer health care and dependent care FSAs.

Client Company A wants medical options 2 and 3 and dental option 2 offered to its employees. The PEO has the cafeteria plan set up on a calendar year. Company A would like the cafeteria plan to run from 7/1-6/30. Can they set up a separate cafeteria plan that will house the medical and dental options? Does it have to be set up by the PEO itself, since it is the coemployer? Or can it be set up by the client company? Will the PEO's other client companies be considered affiliate companies? Can Company A NOT offer the FSAs, but simply have a POP?

Thanks!

[GBurns]

On the other hand you have not yet recognized the very first issue which is the most important issue, namely, whether or not this PEO can even offer the Cafeteria Plan and/or the underlying benefits.

The IRC does not recognize a "co-employer".

As per the guidance issued for 401(k) plans it might be possible to use a Multiple employer plan. However, that could and should bring up the issue of a MEWA and your state law which might actually prohibit MEWAs in the first place.

Again even if a multiple employer plan (MEWA or not) is used you still need the insurance providers to be willing to issue coverage to such an arrangement. If they will not then there would be no benefits to offer under the Plans even if you set up the plans.

[Guest aearle]

Good points.

The providers ARE willing to issue coverage, so that is not a problem. There are benefits to live under the plan(s).

Assuming it is allowable for the caferteria plan to exist and there are benefits to live under it, do all of the client companies have to live under one plan? Would they be considered affiliated companies? If not, how does the PEO even perform nondiscrimination testing?

[Guest Lugeguy]

The PEO can operate 2 plans.

One plan for the benefit of those client companies taking advantage of the PEO's benefit plans.

One plan for the benefit of those client companies offering their own benefits.

Client companies can operate their own plan, but if offering full flex, then would be on the hook for unfunded unreimbursed medical claims

The bigger picture about the business plan of the PEO in that a decision should be made by the PEO as to what strategy to use. Require all client companies to use the PEO's 125. Does the PEO credit the client company back with the tax savings or do the keep it as part of the GROSS Profit Margin. What legal liabilities could befall the PEO if it allows client companies to use their own plan, but fail to do it properly.

Many issue to think about and plan for.