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The Section 125 Plan Document Package



The Section 125 Plan Document Package includes:

The Premium Conversion Plan Document
Documents are personally prepared for each client. Document should be accepted and signed by an Officer of the Company and kept on file for review by employees, accountants, IRS, etc.

Premium Conversion Summary Plan Description
Required for each employee. Explains the Plan Purpose, Who is Eligible, How To Enroll, When You May Participate, About Social Security Taxes, About Income Taxes, Future of the Premium Conversion Account, Insurance Contracts, COBRA Continuation, Administrative Facts, ERISA Rights Statement, and the Schedule of Benefits, Coverage Tiers and Cost of Coverage's.

Premium Conversion Election Form
Personalized for the Company it will include Salary Deduction Agreement, and Benefit Election data of health plans included.

OPTION: Dependent Care Flexible Spending Account Document
Includes necessary documents to establish Section 129 Dependent Care Flexible Spending Account. Also includes all administrative forms customized for each client including: Employee Election Form to participate in the Dependent Care Flexible Spending Account, Change Forms, and Claim Forms. Includes Summary Plan Description and Question and Answer Section for distribution to each employee.

OPTION: Medical Expense Reimbursement Flexible Spending
Includes necessary documents to establish Section 105 Medical Expense Reimbursement Flexible Spending Account. Also includes all administrative forms customized for each client including: Employee Election Form to participate in the Medical Expense Reimbursement Flexible Spending Account, Change Forms, and Claim Forms. Includes Summary Plan Description and Question and Answer Section for distribution to each employee.

Administrative Handbook
Includes sections on: Flex Plan Administration, Non-Discrimination Testing, and Reporting and Disclosure information. The Ledger Company can administer the Dependent Care Flexible Spending Account or the Medical Expense Reimbursement Flexible Spending Account (FSA) through our payroll program.  You will be provided with instructions regarding FSA setup, maintenance procedures, etc.

Corporate Resolution
Includes minutes of the Corporate Board meeting to adopt the Section 125 Plan as an employee benefit.
 
Flexible Spending Account Administration

Since individual accounts must be maintained, the medical benefit portion of a Cafeteria Plan will require administration by the employer. The employer will need to account for the following:

  • Additions to each employee account. These additions result from redirected payroll amounts each pay period.
  • Employee requests for reimbursement. The employee could request an amount in excess of his or her current account balance. The excess request must be recorded by the employer, so that it can be reimbursed when the employee's account receives future redirected payroll amounts.
  • Employee reimbursements. Normally are paid to the employee, but can be paid directly to the provider of the benefit, if requested by the employee, and if the plan provisions provide for this administrative increase.

Advantages of Including the Medical Expense Reimbursement Option

  • Employees recognize significant tax savings. Employees save income taxes as well as the FICA (Social Security) tax on the portion of income deferred.
  • Administrative costs will be slightly more per month. Generally, this is so for each employee.
    The employer may wish to deduct the administrative costs from the employee's paycheck.
    Such a deduction would still be just a fraction of the employee's overall savings.
  • A means is provided for employees to deduct expenses. These expenses may otherwise be non-deductible.
  • Employees are encouraged to seek regular medical care. This occurs because of the simplicity with which medical expenses are paid.

Advantages of Including Dependent Care Option
The dependent care benefit option is comparable to the medical benefit option discussed previously. The similarities are:

  • An estimate of dependent care expenses must be made. The estimate must be completed by the employee prior to the plan year.
  • The estimated dependent care expenses are redirected. They are moved from the employee's salary to the individual's Cafeteria Plan account. Reimbursements are made from this account to the extent of the account balance.
  • Individual accounts require employer administration
  • Income and Social Security taxes are reduced. They are not paid on the amount of salary redirected.

Administrative Costs
Administrative costs will vary significantly between plans. As discussed previously, a plan which offers insurance only would require virtually no administrative costs. (The Cafeteria Plan deduction is handled in a manner similar to payroll deductions for insurance premiums.) On the other hand, the remaining benefits would require additional expense. The amount of administrative expense that an employer is willing to absorb may be affected by one of the following factors:

  • Will the tax savings pay for the administrative costs?
  • Does the employer have sufficient payroll/accounting staff? Extra staff may be required to handle the administrative work.
  • Can the company do the administrative work in-house?

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