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POP docs and simple cafeteria plan questions


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Hi everyone! We are a small organisation (less than 10 staff) and have been told by our payroll company that we need to establish a cafeteria plan to be able to do pre-tax health & dental insurance. The payroll company offer a POP plan doc for $400 which includes a NDT kit. We think we qualify for a simple cafeteria plan and if we are right, NDT shouldn’t be necessary. 2 questions: 1-is there anything we should be alert to using the payroll company plan doc ie is that usually ok or should we be getting the doc from somewhere else? ; 2-who could tell us whether we do in fact qualify for the safe harbour ie who advises on this stuff? We are NFP so fee conscious. 

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Your broker can probably provide a basic Section 125 cafeteria plan POP-only template without charge.  However, it will be hard to avoid the need to undergo NDT.  I'm not aware of any cheaper alternative than the amount quoted as a way to take care of that testing.  There is at least a safe harbor for POP-only arrangements (i.e., no health FSA or dependent care FSA) that streamlines the §125 NDT requirements by removing multiple components.  

Simple cafeteria plans actually are quite complex (primarily because of the employer contribution requirements) and therefore are close to nonexistent in practice.  It may be a viable option if you are committed to not offering a FSA in the future--but most employer with a cafeteria plan do offer the FSAs. 

Here's a thread with more discussion:

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If by establishing a § 125 cafeteria plan, wages that previously were not excluded from FICA taxes become excluded from wages for those taxes, would the employer’s first-year savings on the employer’s portion of FICA taxes cover the service provider’s $400 fee if those wages are at least $5,229 [$5,229 x 7.65% = $400.0185]?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania



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$400 is expensive, but you need the POP. You could connect with your broker who could likely create one for you at no cost. Alternatively, I know a handful of vendors that are between less than that AND they provide tools to test. If you read the rules and are comfortable with your own assessment regarding NDT, you can simply note that and be prepared to speak to it in the event of an IRS audit. Or, discuss with your CPA as NDT is under IRS tax code Section 125.

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