Simple Cafeteria Plan

[Guest mcw]

Client currenlty provide $2000 medical reimbursement (not FSA) and pays all of individual coverage and 1/2 of family coverage. It also has a premium only cafeteria plan. However, HCEs are not allowed to defer the full non-employer cost of health insurance because of testing issues. Also, it cannot offer a dependent care FSA due to testing issues. I would like to utilize the new simple cafeteria plan to allow HCEs to contribute the entire non-employer cost of health insurance and offer dependent care FSA. My thought is to eliminate the medical reimbursement, add a health FSA and dependent care FSA, and contribute $2200 to the plan. The $2200 is 2% of $110,000 (the HCE comp number). Therefore, we guaranty that all NHCEs get at least a 2% contribution. Client does not want to contribute 2% for everyone becuase the HCEs would get too much and the NHCEs would be losing benefits (they have $2000 medical reimbursement now and 2% would be less than this amount). However, §125(j)(3) says it has to be "a uniform percentage (not less than 2 percent) of the employee's compensation."

It seems to me that my plan should work because client would be giving NHCEs more than what is required and HCEs less than what is required. However, it does not work according to the language of the code.

Any suggestions or ideas?

[Guest Eric A]

For purposes of the 2% of pay requirement, you could cap compensation for some or all of the HCEs (which I believe is permitted under the 414(s) regulations). For example, cap compensation at $100,000 for the HCEs. This gives you your $2,000 employer contribution. Then, for the NHCEs who don't get to $2,000 on a percentage of pay basis, just make additional contributions as needed to get them to $2,000. 125(t)(3)© allows an employer to make contributions to the plan in addition to the contribution required under 125(t)(3)(A).

Also, aren't HCEs and keys excluded from the contribution requirement?