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Jim Schartz
Jim Schartz has been involved in the oil industry for over 40 years in a variety of Administrative and Management capacities for Derby Refining Co. and Coastal Mart, Inc. Currently, as owner of J & S Consultants, he works with all types of businesses in several areas, with particular emphasis in employee benefits. J & S Consultants is an independent representative for United Services Association for Health Care (USA +), providing individuals and employees (through employee benefit programs), an average savings per household of $400 per month on expenses including but not limited to medical, dental, hearing, pharmaceuticals, legal, travel, hotel, and grocery coupons. Jim can be contacted by phone at (316) 531-2684 or by e-mail jjsconsult@yahoo.com
Business Consulting
2002-06-01 14:59:00
‘Section 125’ plans
Question:  What is a section 125 plan?
Answer:  A Section 125 plan, also legally known as a "cafeteria plan", allows health contributions and deposits to flexible spending accounts to be made with pre-tax dollars, within guidelines established for such plans in Internal Revenue Code Section 125.7.  Question:  What are the requirements for Section 125 plans? Answer:  The principal requirements to qualify under Section 125 are to adopt a written plan document, all participants must be employees, contributions must be made through salary reduction agreement, and the plan must meet the nondiscrimination, election and enrollment requirements specified under the Code. In addition, an annual IRS Form 5500 must be filed for the plan.Question:  What are the nondiscrimination requirements under Section 125?Answer:  A cafeteria plan must pass three types of discrimination tests: eligibility, benefits and concentration.-  Eligibility test: Plan will be considered nondiscriminatory if 1) the plan uniformly benefits all employees in the classes designated as eligible to participate, and is not found to discriminate in favor of highly compensated employees; 2) the "waiting period" for eligibility cannot be longer than 3 years and the waiting period is the same for each employee; 3) the effective date for coverage is no later than the first day of the plan year beginning after the satisfaction of the eligibility waiting period.-  Benefits test: Under the safe harbor rule for cafeteria plans covering health benefits, a plan is not discriminatory if the employer contributions, including salary reductions, on behalf of each employee equals 100% of the health benefit cost for the majority of highly compensated participants; or 75% of the cost of the most expensive health benefit coverage elected by any similarly situated participants.-  Concentration test: A cafeteria plan is nondiscriminatory if the nontaxable qualified benefits provided to all employees under the plan is at least 75% of that provided to key employees. This calculation can be based on the premium value of the coverage provided, rather than on actual benefits or reimbursements received.Question:  What are the election requirements under Section 125?Answer:  Benefit elections must be irrevocable for the duration of the plan year, with an exception made for specific changes in family status. The qualifying changes in status are: Marriage; Divorce; Death of a spouse or a child; Birth or adoption of a child by the employee; Termination of a spouse’s employment; Commencement of a spouse’s employment; Change from part-time or full-time employment, or vice versa, by either the employee or the employee’s spouse; The taking of an unpaid leave of absence by either the employee or the employee’s spouse; A significant change in the employee’s or the spouse’s health coverage that is attributable to the spouse’s employment. Question:  What are the enrollment requirements under Section 125?Answer:  Participant elections (enrollment in the benefits of their choice) must be made prior to any taxable benefits under the plan becoming currently available. This usually means before the beginning of each plan year.
 
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