Premium Only Flexible Spending Plans

Paige

Our company offers a premium-only flexible spending plan to our employees--no health care expenses and no dependent care expenses. I am trying to determine if this plan is regulated the same way as the health care and dependent care expenses plans. In looking at one of my resources regarding benefits, I'm not getting a clear answer. Do we still need to have a plan document in place in order for this to be a qualified plan? Or can we just essentially say, we're going to provide this benefit to employees, here's your form to sign off if you want it or not, and we file a 5500 every year?

Scott Ruth

Yes, you need a plan document. Anytime you give an employee a choice between cash (salary) and a nontaxable benefit (health insurance, for example), you have created a "cafeteria plan" or "flexible spending plan" governed by section 125 of the Internal Revenue Code. That section specifically requires that the plan be in writing to be eligible for favorable tax treatment. In other words, if you do not have a document, the IRS could claim that all premiums paid by the employees are taxable income, and require payment of income, FICA, and FUTA taxes on those amounts by the employee and the employer.

A stictly premium only plan is generally not subject to ERISA; however, an annual Form 5500 is still required to be filed under IRS regulations.