For clients who offer a qualified High Deductible Health Plan with a Health Savings Account (HSA) allowing for pre-tax HSA contributions, you should have in place a separate written Cafeteria Plan for that HSA. Cafeteria Plans are employee reimbursement plans that are governed by Section 125 of the IRS tax code. When employers establish Cafeteria Plans, their employees have the option of making pre-tax contributions to their HSAs from a payroll deferral. Without a Cafeteria Plan, employees only have the option to contribute to their HSA post-tax, and then must wait to deduct their contributions from their tax return.
An HSA Section 125 Cafeteria Plan is recommended if you offer an HSA with or without a Flexible Spending Account (FSA). There are benefits to running the HSA through a Cafeteria Plan, and we recommend that all clients set them up to include pre-tax employee contributions through a Section 125 Cafeteria Plan to take advantage of those benefits and rules.
Most vendors who administer tax advantaged plans, such as an HSA or an FSA, provide the testing services required when these tax advantaged plans are included in a Cafeteria Plan. Please contact your HSA and FSA administrator for details on such testing.
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