QUESTION: Our company maintains a premium-only cafeteria plan (POP) under which employees who elect company-sponsored major medical coverage can pay their share of the premiums with pre-tax dollars. We are thinking of amending our cafeteria plan to add some other benefits. We know that health FSAs and DCAPs can be offered under a cafeteria plan, but what other benefits can we offer?
ANSWER: Employer-sponsored group major medical coverage, health FSAs, and DCAPs are the most common cafeteria plan benefits. Other common benefits that can be offered under a cafeteria plan include the following:
health savings account (HSA) contributions;
group-term life insurance on the life of an employee (although the cost of coverage in excess of $50,000, less any amount paid after-tax, is includible in the employee’s gross income);
long-term or short-term disability coverage;
coverage under other arrangements that qualify as accident or health plans under the Code (e.g., employer-sponsored group dental or vision coverage); and
purchase or sale of paid time off (PTO) (i.e., vacation, sick, or personal days).
Of course, various rules and issues may need to be addressed before offering these benefits under the cafeteria plan. For example, specific requirements must be met when the purchase or sale of PTO is offered as a benefit under a cafeteria plan. And cafeteria plans generally cannot be used to pay or reimburse premiums for individual insurance policies that provide major medical or other nonexcepted coverage. Reimbursing premiums for other types of individual insurance coverage raises issues under ERISA, COBRA, and other laws.
For more information, see EBIA’s Cafeteria Plans manual at Section X (“What Benefits Can Be Offered Under a Cafeteria Plan?”), which includes a table summarizing whether various benefits can be offered under a cafeteria plan. See also EBIA’s Consumer-Driven Health Care manual at Section XVIII.B (“HSAs Offered Through Cafeteria Plans”) and EBIA’s Fringe Benefits manual at Section XXII.F (“Buying or Selling Vacation/PTO Days Under a Cafeteria Plan”). You may also be interested in our upcoming webinar “Learning the Ropes: An Introduction to Cafeteria Plan Design & Administration” (live on 12/5/2018).
Contributing Editors: EBIA Staff.