Simple Cafeteria Plans

The difference between Simple and Traditional Cafeteria Plans for eligible employers.

Simple Cafeteria Plans were created by the Affordable Care Act (ACA) and have been an option for eligible employers since 2011. This type of plan provides eligible employers with an automatic pass for many of the non-discrimination tests that that apply to Cafeteria Plans and its component benefits. This is the primary difference between a Simple Cafeteria Plan and other more traditional Cafeteria Plans.

Simple Cafeteria Plans are only available to employers that had an average of 100 or fewer employees during at least one of the two preceding plan years. Employers must make the Simple Cafeteria Plan available to any employee with at least 1,000 hours of service in the preceding plan year. Employers can exclude employees under the age of 21, union employees and employees with less than one year of service. The other general rules for Cafeteria Plan eligibility also apply, which means most types of business owners are ineligible to participate.

Employers must also make minimum contributions to employees participating in the Simple Cafeteria Plan who are not key employees or highly compensated employees. The minimum contributions must be at least:

  • A uniform percentage (but not less than 2%) of the employee’s compensation for the plan year, or
  • An amount that equals or exceeds the lesser of:
    • 6% of the employee’s compensation for the plan year, or
    • Twice the employee’s salary reductions

Employers can make contributions that exceed the required minimums; however, if they satisfy the minimum contribution requirement by making matching contributions, they cannot make matching contributions on behalf of key employees or highly compensated employees at a rate that is greater than the matching contribution rate for any other employee.

Simple Cafeteria Plans automatically satisfy the eligibility test, contributions and benefits test and the key employee concentration test that apply to Cafeteria Plans. Additionally, the following non-discrimination tests for other component benefits under the Cafeteria Plan are treated as having been satisfied: (i) the eligibility and benefits test for Health FSAs; (ii) the eligibility test, the contribution and benefits test, the more-than-5% owners concentration test, and the 55% average benefits test for Dependent Care FSAs; and (iii) the eligibility and benefits test for group term life insurance.

Simple Cafeteria Plans may be a little more complex than its name suggests, but eligible employers that choose to take advantage of this new type of Cafeteria Plan will avoid the burden of having to perform ongoing non-discrimination testing. Simple Cafeteria Plans also do not require any unique or special type of plan documents. Standard plan documents will suffice for a Simple Cafeteria Plan, but employers may want to document on their own that they are eligible for this type of Cafeteria Plan in the event of an audit.

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