Glossary of Terms:
Cafeteria Compensation Plan: IRS Code Section 125.
A group benefit plan established by an employer for the
employees. Cafeteria Compensation Plans are authorized under the U.S. Internal Revenue
Code, Section 125. Also referred to as a Section 125 Plan and a Flexible Benefits Plan.
Reimbursement Accounts:
A non-insurance plan established for employees that allows
them to set aside certain funds, tax free, to be used to reimburse the employee for
expenses authorized under the plan. Medical Reimbursement accounts can be established to
reimburse employees for out-of-pocket expenses not covered under the group health and
medical plan such as annual deductibles, employee's co-insurance share, prescriptions, and
the like. Dependent Care accounts can be established to reimburse employees for
out-of-pocket expenses relating to dependent care.
These accounts may be funded by employee elections through salary reduction or they may
be employer funded. They are also called unreimbursed medical accounts and flexible
spending accounts. Employees may participate in reimbursements, without regard to
participation in other medical plans.
Medical/Dental Reimbursement Account: IRS Code Section
105.
Expenses not covered by the employer plan may qualify as
eligible expenses reimbursable under Accident and Health coverage. If the plan is not
totally funded or paid by the employer's medical plan, employees may make annual elections
and have these deductions placed in his/her Medical/Dental Reimbursement Account.
Annual elections are most generally payroll deducted from the employee's paycheck on a
per pay period basis, and deposited in the employee's Reimbursement Account. These payroll
deduction amounts are made on a Pre-Tax basis.
When an eligible expense is incurred, the employee submits these expenses (much like
filing an insurance claim form) and completes an expense voucher from which they are
reimbursed on a Pre-Tax basis.
Dependent Care Assistance: IRS Code Section 129.
Dependent Care Assistance for employees is covered under Code
Section 129, and may be provided through use of reimbursement accounts, flexible spending
accounts or actual on site facilities.
Elections and benefits are limited to $2,500 or $5,000 annually depending on whether
the employee's tax filing status is joint or separate.
Elections are payroll deducted on a Pre-Tax basis and placed in the employee's
Dependent Care Assistance Account. As dependent care expenses are incurred, the employee
submits the expense with a completed claim voucher and is reimbursed from his/her account
on a Pre-Tax basis.
It is important to note that Dependent Care Reimbursement expenses do not have to be
just for child(ren). These expenses may also cover expenses for elder care.
Accident & Health Plans: Excluded for gross income
via Code Sections 105 and 106.
Premium costs for these programs are eligible under Section
125. These programs would include employer sponsored Personal Accident plans, Accidental
Death & Dismemberment plans, Disability plans and Cancer/Intensive Care plans, etc.
Only plans that have no cash accumulations or return of premium features (even as
optional riders) are eligible for inclusion.
Term Life Insurance: IRS Code Section 79.
The expense of the first $50,000 is excluded from gross
income under Code Section 79. Amounts above $50,000 may be included on the employee's menu
of benefits, but are not payable on a Pre-Tax basis.
In addition, amounts other than "de minimus" amounts are not deductible for
the employee spouse and or children. |
