Types of Plans > Who can Sponsor a Plan > What are the Advantages > Cafeteria Plans or pre-tax benefit plans come in all shapes and sizes. Cafeteria Plans: A Cafeteria Plan is a reimbursement plan governed by IRS Section 125 which allows employees to contribute a certain amount of their gross income to a designated account or accounts before taxes are calculated. Flexible Spending Accounts: A Flexible Spending Account is a designated reimbursement account under a Cafeteria Plan which allows employees to contribute a certain amount of their gross income to medical or dependent daycare accounts before taxes are calculated. Health Reimbursement Arrangements (HRAs): An HRA is a type of Medical Reimbursement Plan (MRP) that allows the employer to contribute tax-free dollars to a designated employee account or accounts. These accounts are for employee reimbursement of out-of-pocket medical expenses (including some insurance premiums and deductibles). Health Savings Accounts: Health savings accounts are tax favored accounts that can be contributed to by or on behalf of “eligible individuals” covered by certain high deductible health plans (HDHPs) to pay for certain medical expenses of eligible individuals and their spouses and/or tax dependents. Medical Reimbursement Plans: A medical reimbursement plan or MRP is an employer-funded health plan that reimburses employees, their spouses, and dependents for certain medical care expenses not covered through any other health plan. An MRP is very similar to an HRA. However, unlike the HRA, an MRP does not establish employee accounts and therefore does not allow participants to carry over unused benefits to subsequent plan years. Qualified Transportation Plans: A Qualified Transportation Plan (QTP) is a reimbursement plan governed by IRS Section 132 that allows employees to contribute a certain amount of their gross income to a designated account or accounts before taxes are calculated. These accounts are for specified transportation and parking expenses for commuters. Who can sponsor a plan? Who Can Sponsor or Participate in a Cafeteria Plan? Virtually any company can sponsor a cafeteria plan for its employees, regardless of size. Eligible companies include: “S” or “C” Corporations Partnerships Non-Profit Organizations Government Entities Limited Liability Companies (LLC) Limited Partnerships (LLP) Sole Proprietorships There are some IRS restrictions on who is eligible to participate in the plan, however. Only employees of the plan sponsor (company) can participate. Non-eligible individuals include: Self-Employed Individuals Partners A “More-Than-2%” Shareholder in an “S” Corporation Owners of “C” Corporations, unless they elect no more than 25% of total plan contributions Members of an LLC What are the advantages? What are the Benefits of Sponsoring a Reimbursement Plan? There are several significant benefits to sponsoring a reimbursement plan. They include: Tax Savings for Your Company Savings for Your Employees Offering a Stronger Benefit Program Tax Savings for Your Company In any reimbursement plan, all contributions made by the employer are non-taxable dollars. This saves your company a significant amount in Federal, FICA, FUTA, Workers’ Compensation and some State income taxes. For example, a company with 50 cafeteria plan participants might save: Expenses Before Cafeteria Plan Expenses After Cafeteria Plan Annual Payroll $1,500,000 $1,500,000 Employee (EE) Paid Medical Premiums $0 -$75,000 EE Before Tax Medical Expenses $0 -$50,000 EE Before Tax Dependent Care Expenses $0 -$25,000 Taxable Payroll $1,500,000 $1,350,000 FICA Taxes (7.65%) -$144,750 $103,275 Annual Savings $0 $11,475 Savings for Your Employees Any contributions made to a reimbursement plan by the employer are non-taxable dollars to the employee as well. These amounts are a substantial benefit to employees for medical, dependent daycare, and transportation expenses. However, with a Cafeteria Plan, your employees save an additional amount in Federal, FICA, and some State taxes. For example, an employee with a moderate income might save: Income Before Cafeteria Plan Income After Cafeteria Plan Monthly Salary $3,000 $3,000 Before-Tax Medical Expenses $0 -$100 Before-Tax Dependent Care Expenses $0 -$300 Taxable Salary $3,000 $2,600 Taxes-Federal & Social Security -$750 -$650 After-Tax Medical Expenses -$100 $0 After-Tax Dependent Care Expenses -$300 $0 Net Monthly Salary $1,850 $1,950 Monthly Savings $0 $100 Yearly Savings $0 $1,200 per year Offering a Stronger Benefit Program An attractive and comprehensive benefits package can be an invaluable aid to your company. Not only does it increase employee satisfaction, in turn improving employee productivity, it can substantially decrease hiring and training costs by lowering turnover and increasing company loyalty. For more information on how to show the true value of your employees’ total compensation package to them, visit myBenefitStatements.