A simple plan is still a written cafeteria plan with a limited menu.
The safe harbor changes how a plan passes the nondiscrimination rules. It does not change what the plan may offer, and it does not remove the need for a plan document.
Where This Rule Sits.
General information, not legal or tax advice. Statutes and IRS guidance change, so read the current text and check the details with your own counsel or tax advisor.
Simple Cafeteria Plans Overview
The full map of the safe harbor and the five rules behind it.
FSA And HRA Administration
How flexible spending accounts are run once they are on the menu.
Summary Plan Description Guide
Where employee-facing plan rules are written down.
What The Menu Can Hold.
Qualified benefits are, in general, benefits that another provision of the Internal Revenue Code lets an employee exclude from income, such as employer-sponsored health coverage and dependent care assistance. A cash option sits alongside them; that choice between cash and benefits is what makes it a cafeteria plan.
Some items are off the menu. IRS Publication 15-B says a cafeteria plan generally cannot include deferred compensation, with a qualified 401(k) as the exception, and cannot offer scholarships or fellowships, Archer MSAs or long-term care insurance.
A health flexible spending account can be offered, but section 125(i) caps employee salary reductions to it at a dollar amount that is adjusted for inflation. Check the figure for the plan year in current IRS guidance before elections open.
Publication 15-B describes a cafeteria plan as a written plan. In practice that means a signed and dated document, not a payroll setting. For a simple plan we want the document to say that it is intended as a simple cafeteria plan, list the benefits, state the eligibility rules and exclusions chosen, and spell out the contribution formula in words an auditor can follow.
Setting It Up.
Decide which qualified benefits the plan will carry, and confirm none of them is on the excluded list.
Draft the plan document so it matches how payroll and enrollment actually run.
Adopt it with a date, and file it with the rest of the plan records.
Keep employee-facing materials consistent with the document, so the summary employees read says what the plan says.
Mistakes To Avoid.
Relying on payroll deduction codes as if they were the plan. Listing a long-term care premium as a pre-tax choice. Describing the contribution formula loosely, or changing it without a dated amendment.
The document also has to reflect the contribution formula and the eligibility exclusions the employer chose.
Laws And Sources
Cafeteria Plans, 26 U.S.C. 125 — Subsection (j) sets the simple cafeteria plan rules; subsections (f) and (i) cover qualified benefits and the health FSA cap.
IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits — The IRS summary of simple cafeteria plans for small businesses, including the cafeteria plan written-plan description.
Written Plan And Simple Plan Rules, 26 U.S.C. 125(d) and (j) — Section 125 requires a written plan, and subsection (j) sets the extra conditions a simple cafeteria plan must meet.
Quick Answers.
Short answers to the questions we hear most on this rule.
Can a simple plan include a health flexible spending account?
Yes. Health FSA coverage can be offered through a cafeteria plan, subject to the salary reduction cap in section 125(i).
Can a 401(k) be part of the cafeteria plan?
Generally a cafeteria plan cannot defer pay, but IRS Publication 15-B notes an exception for a qualified 401(k) plan.
Does a written plan need to be long?
Length is not the point. The plan has to exist as a written document that reflects how it actually runs, including the contribution formula and exclusions.
More Guides In This Series.
Eligible Employer Size Test
The average-headcount test, how younger companies are measured, and why related entities may be counted together.
Eligibility And Participation
Who must be allowed in, which groups an employer may leave out, and the equal-choice rule for benefit elections.
Minimum Employer Contribution
The 2 percent flat contribution, the matching alternative capped at 6 percent, and a worked pay example.
Outgrowing The Size Limit
How the 200-employee growth rule lets a plan continue, and what replaces the safe harbor afterward.
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