$99 Section 125 Plan Administration

 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 the Medical Expense Reimbursement Option

• Employees recognize significant tax savings. Employees save income taxes as well as the FICA (SocialSecurity) 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 the 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 done 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 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.)

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