SECTION 125 CAFETERIA PLAN DOCUMENT
Plan Name: [________________________________]
Plan Number: [____]
Employer Identification Number (EIN): [________________________________]
Effective Date: [__/__/____]
Plan Year: [________________________________] to [________________________________]
TABLE OF CONTENTS
- Plan Sponsor and Administrator
- Purpose and Legal Authority
- Eligibility
- Benefit Components
- Elections and Changes
- Health Flexible Spending Account
- Dependent Care Flexible Spending Account
- Health Savings Account Compatibility
- Premium-Only Plan Component
- Nondiscrimination Testing
- COBRA Continuation
- Plan Administration
- Amendment and Termination
- General Provisions
PLAN SPONSOR AND ADMINISTRATOR {#plan-sponsor}
Plan Sponsor (Employer):
Company Name: [________________________________]
Address: [________________________________]
City, State, ZIP: [________________________________]
Phone: [________________________________]
Plan Administrator:
Name: [________________________________]
Title: [________________________________]
Phone: [________________________________] Email: [________________________________]
Third-Party Administrator (if applicable):
Name: [________________________________]
Phone: [________________________________] Website: [________________________________]
PURPOSE AND LEGAL AUTHORITY {#purpose}
2.1 This Cafeteria Plan is established pursuant to Internal Revenue Code § 125 to allow eligible employees to pay for qualified benefits on a pre-tax basis, thereby reducing federal income tax, Social Security tax, and (in most states) state income tax.
2.2 The Plan permits participants to choose between receiving their full compensation in cash or electing one or more qualified benefits as defined in IRC § 125(f).
ELIGIBILITY {#eligibility}
3.1 Eligible Employees: All common-law employees of the Employer who:
☐ Have completed [____] days/months of service
☐ Are regularly scheduled to work at least [____] hours per week
☐ Are not in an excluded class: [________________________________]
3.2 Entry Date: ☐ Date of hire ☐ First of the month following hire ☐ First of the month following [____] days of employment
3.3 The following individuals are NOT eligible: Self-employed individuals, partners, more-than-2% S corporation shareholders.
BENEFIT COMPONENTS {#benefit-components}
4.1 The following qualified benefits are available under this Plan (check all that apply):
☐ Premium-Only Plan (POP) — Pre-tax payment of employee share of group health, dental, and vision premiums
☐ Health Flexible Spending Account (Health FSA) — Reimbursement of eligible medical expenses
☐ Limited Purpose FSA — Dental and vision expenses only (for HSA participants)
☐ Dependent Care Flexible Spending Account (DCFSA) — Reimbursement of dependent care expenses
☐ Health Savings Account (HSA) contributions — Pre-tax contributions via payroll
☐ Adoption Assistance — Per IRC § 137
☐ Group-Term Life Insurance — Up to $50,000 per IRC § 79
☐ Supplemental Insurance Premiums — Accident, disability, cancer, etc.
4.2 Cash (taxable compensation) is always an available option.
ELECTIONS AND CHANGES {#elections}
5.1 Annual Election Period: Elections must be made during the open enrollment period before the start of each Plan Year. Elections are irrevocable for the Plan Year except as provided in Section 5.3.
5.2 New Hire Elections: Must be made within [____] days of eligibility date.
5.3 Permitted Mid-Year Changes (Change in Status Events per Treas. Reg. § 1.125-4):
☐ Change in legal marital status (marriage, divorce, death of spouse, legal separation, annulment)
☐ Change in number of dependents (birth, adoption, placement for adoption, death)
☐ Change in employment status (commencement or termination; full-time/part-time change)
☐ Dependent satisfies or ceases to satisfy eligibility requirements
☐ Change in residence affecting plan eligibility
☐ HIPAA special enrollment rights
☐ FMLA leave
☐ Judgment, decree, or order (QMCSO)
☐ Medicare/Medicaid entitlement
5.4 The election change must be consistent with and correspond to the change-in-status event.
HEALTH FLEXIBLE SPENDING ACCOUNT {#health-fsa}
6.1 Maximum Annual Election: $[________] (2026 IRS limit: confirm annually)
6.2 Minimum Annual Election: $[________]
6.3 Eligible Expenses: Medical, dental, and vision expenses qualifying under IRC § 213(d).
6.4 Carryover and Grace Period (select one):
☐ Carryover — Up to $[________] of unused funds carry over to the next Plan Year
☐ Grace Period — 2 months and 15 days after the Plan Year end to incur expenses
☐ Neither — Use-it-or-lose-it applies strictly
6.5 Claims Submission Deadline: [____] days after the end of the Plan Year (or grace period).
6.6 Uniform Coverage Rule: The full annual election amount is available on the first day of the Plan Year, regardless of contributions made to date.
DEPENDENT CARE FLEXIBLE SPENDING ACCOUNT {#dcfsa}
7.1 Maximum Annual Election:
☐ $5,000 (married filing jointly or single)
☐ $2,500 (married filing separately)
7.2 Eligible Expenses: Care for qualifying individuals under age 13 (or any age if incapable of self-care) to enable the participant to work, per IRC § 129.
7.3 Claims Availability: Only amounts actually contributed to date are available for reimbursement (no uniform coverage rule).
7.4 Unused funds at Plan Year end: ☐ Forfeited ☐ Grace period applies.
HEALTH SAVINGS ACCOUNT COMPATIBILITY {#hsa}
8.1 Participants enrolled in a qualifying High Deductible Health Plan (HDHP) may elect:
☐ HSA contributions through pre-tax payroll deduction
☐ Limited Purpose FSA (dental and vision only)
8.2 Participants enrolled in a general Health FSA are NOT eligible to make HSA contributions (except during a Limited Purpose FSA or post-deductible HRA arrangement).
PREMIUM-ONLY PLAN COMPONENT {#pop}
9.1 Participants may elect to pay their share of the following insurance premiums on a pre-tax basis:
☐ Group medical insurance
☐ Group dental insurance
☐ Group vision insurance
☐ Supplemental insurance: [________________________________]
9.2 The premium amounts are determined during annual open enrollment.
NONDISCRIMINATION TESTING {#nondiscrimination}
10.1 The Plan must satisfy the nondiscrimination requirements of IRC § 125(b) and (c):
☐ Eligibility Test — Plan does not discriminate in favor of highly compensated employees (HCEs) as to eligibility
☐ Benefits and Contributions Test — Plan does not discriminate in favor of HCEs as to benefits
☐ Key Employee Concentration Test — No more than 25% of aggregate nontaxable benefits are provided to key employees
10.2 The Plan Administrator shall conduct or arrange for nondiscrimination testing annually.
COBRA CONTINUATION {#cobra}
11.1 The Health FSA component is subject to COBRA if the participant has underspent Health FSA funds at the time of the qualifying event (i.e., year-to-date reimbursements are less than year-to-date contributions).
11.2 The DCFSA is generally NOT subject to COBRA.
PLAN ADMINISTRATION {#administration}
12.1 The Plan Administrator has full discretionary authority to interpret the Plan, determine eligibility, adjudicate claims, and make all decisions.
12.2 Claims Procedure: Per 29 CFR § 2560.503-1 for ERISA-subject components. Claims denied shall include specific reasons and appeal rights.
12.3 Recordkeeping: The Employer shall maintain plan records for at least 6 years.
AMENDMENT AND TERMINATION {#amendment}
13.1 The Employer reserves the right to amend or terminate the Plan at any time.
13.2 Amendments shall not reduce benefits for the current Plan Year for which elections have been made.
13.3 Notice of material amendments shall be provided to participants within 60 days.
GENERAL PROVISIONS {#general-provisions}
14.1 Governing Law: Federal law (IRC § 125, ERISA where applicable), and the laws of the State of [________________________________] for matters not preempted.
14.2 Non-Assignability: Benefits under this Plan may not be assigned or alienated.
14.3 No Employment Rights: This Plan does not create a contract of employment.
14.4 Plan Year: [________________________________]
ADOPTED by the Employer on this [____] day of [________________], [____].
Signature: [________________________________]
Printed Name: [________________________________] Title: [________________________________]
Sources and References
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