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SIMPLE Cafeteria Plans Provide a "Safe Harbor" from Non-discrimination Testing.


The good news is that the new SIMPLE cafeteria plan regulations provide for a “safe harbor” from non-discrimination testing requirements for small employers that allow employees to contribute to health insurance premiums on a pre-tax basis.

Eligible Employers
Employers with an average of 100 or fewer employees on business days during either of the two preceding years are eligible for the simple cafeteria plan.

  • An employer that was previously eligible will remain so for each subsequent year until they exceed an average of 200 or more employees for the prior year.
  • For new businesses, eligibility is based on the number of employees the business reasonably expects to employ for the current year.

Employee Eligibility
All employees who worked at least 1,000 hours during the prior plan year must be eligible to participate in the plan and be able to elect any benefit available under the cafeteria plan the same terms and conditions.

An employer can exclude the following from the eligibility requirement:

  • Employees under age twenty-one prior to the end of the plan year
  • Employees with less than one year of service
  • Employees covered under a collective bargaining agreement
  • Non-resident aliens

Employer Contribution Requirements
Regardless of whether a qualified employee makes any salary reduction contribution, the employer must make a contribution under the plan on behalf of each qualified employee in an amount equal to:

  • a uniform percentage (not less than 2 percent) of the employee’s compensation for the plan year, or
  • an amount that is not less than the lesser of:
    • 6 percent of the employee’s compensation for the plan year, or
    • twice the amount of the salary reduction contributions of each qualified employee (the rate of matching contribution for HCE or key employees cannot be greater than the rate for NHCEs).

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