A only premium plan (POP, also known as the premium conversion plan), set to prop. Regs. Section 1.125-1 under a) (5) has only one choice consisting of cash or accident and health insurance. The money`s in Prop. Regs defined. Paragraph 1.125-1 under a) (2) to include wage reductions in which the worker chooses to refuse a portion of his salary and orders the employer to use the money to pay the worker`s contribution to a given benefit. According to the code, if the money is used by the employer to pay premiums for a POP, the money is not received constructively by the worker and is not taxable. Employers who offer a POP are not required to offer their employees another form of cash, including cash rather than benefits, so that workers who choose not to cover them do not receive a taxable or non-taxable benefit. However, employers can offer cash if they wish, and if the employee accepts it, it is a taxable benefit (see box “A closer look at POPs”). The employer also saves taxes: for every $200 a month an employee sets aside, the employer saves about $15 — the 7.65% of the worker`s salary that the employer would pay for Social Security and Medicare. However, the employer`s tax savings can be more than offset by the costs of implementing and maintaining a pre-tax cafeteria plan.
Federal law allows some small employers to implement so-called simple cafeteria plans, which are automatically considered to meet the non-discrimination requirements of the Internal Income Code for cafeteria plans. In order to propose a simple cafeteria plan, an employer must generally meet three requirements: a cafeteria plan may allow an employee to change his or her choice during a planning year if one of the following provisions arises: Planning documents must indicate the year of the plan and the year of the plan can only be modified for a valid commercial purpose. Like what. B to adapt to the health care provider`s year of performance. Other written plan requirements are planned at Prop. Regs. By. 1.125-1, letter c). The plan must require that workers` elections be held every year.
Elections are irrevocable during the year of the plan; Regs. Under section 1.125-4, employers may authorize certain changes in the middle of the year due to changes in the status of workers. Authorized status changes must be included in the employer`s planning documents. Flexible Expenditure Account Services (FSA) for staff: FSAs can only be offered through a Section 125 plan. In 1970, two-income households accounted for 31% of two-parent households; This figure has continued to rise and now stands at 46% (Pew Research Center). As more and more dual-wage people do not require double health care, workers who have signed up to their spouse`s benefit plan and have not received benefits from their employer do have wage inequality. Cafeteria plans, which allowed employees to choose between cash or benefits, became popular, but the benefits were taxable.