Cafeteria Plans


Special Notice for July 2013:

If you had a Health Reimbursement Arrangement (HRA) in 2012,
you must pay the federal PCORI fee before July 31, 2013

The PCORI fee is a new annual fee of $1 per employee who participated in your HRA. To pay it, you must file IRS Form 720, "Quarterly Federal Excise Tax Return," and the payment must be received before the end of July 2013. The form is long and confusing, and the official instructions for it are even longer and more confusing, so we have simplified everything for you. Here is our letter explaining the fee and how to pay it, and here is a PDF of IRS Form 720 with the relevant parts highlighted.


As insurance rates continue to increase each year, it is apparent that municipalities need assistance with providing benefits while requiring employees to contribute toward the cost. A Cafeteria plan, also known as a Section 125 plan, allows employers who expect employees to contribute to the cost of their health insurance premiums to do so via a Premium Conversion Plan on a pre-tax basis. This simple payroll change allows the employee to avoid paying Federal, FICA and State tax on the contribution. The municipality saves by not having to pay the matching FICA tax on the contribution.

Two popular options are Health Reimbursement Arrangements (HRAs) and Flexible Spending Accounts (FSAs). With an HRA, an employer can set aside money to help employees pay for specific out-of-pocket health care expenses. An FSA allows employees to be reimbursed for professional medical expenses which are not reimbursed by insurance (deductibles, co-pays, eyeglasses, contact lenses, etc.).

For more information on this win-win program, please contact VLCT Member Relations at 1-800-649-7915 or e-mail Larry Smith, Manager, Member Relations.