Article first published in The Journal Record - March 17, 2011.

With all the changes that have resulted from the recent health care reform legislation, one change could help make things easier for small employers - the "simple" cafeteria plan. Employers establish cafeteria plans generally to ensure that certain benefits can be paid for on a tax-free basis. Some of the benefits that qualify for inclusion under a cafeteria plan include group term life insurance, benefits under a self-insured medical expense reimbursement plan, and a dependent care assistance plan. The Internal Revenue Service requires that benefits provided under a cafeteria plan do not discriminate in favor of highly compensated employees, which can create an administrative headache for employers, particularly small employers.

Health care reform legislation encourages small employers to provide benefits under a cafeteria plan by providing a means to simplify the cumbersome process of benefits administration. The benefit of establishing a simple cafeteria plan to a small employer is that the employer is provided with a safe harbor from the nondiscrimination requirements for cafeteria plans as a whole, as well as from the nondiscrimination requirements for the specified individual qualified benefits offered under a cafeteria plan. While the Internal Revenue Service has not been vigilant regarding nondiscrimination testing for health and welfare benefits in the past, it has recently emphasized that the nondiscrimination testing requirements must be met in the future.

Article authored by McAfee & Taft Attorney: Mary Steichen.