The Jacobs Company
Employee Benefit Plans & Services
Cafeteria Compensation Plans
 IRC Sec. 125

The plan must be available to employees who qualify under a classification established by the employer and which the IRS determines as not discriminating in favor of highly compensated or key employees.

One discrimination test which impacts greatly on smaller employers is the "25% Rule." The benefits or amount deferred by the key employee group may not exceed 25% of the total amount deferred by all employees.  If this rule is violated, the deferrals of the key employees are treated as taxable income defeating the purpose of the plan for them.  There is no effect on rank and file workers.

Key employees are:

            A. Any officer whose compensation exceeds $62,500 in 1997.
            B. Any employee owning 5% or more of the company.
            C. Any employee owning I% or more of the company who earns more than $15 0,000.
            D. One of ten employees owning the largest interest in the company whose compensation is more than $30,000.

How is the Employee Benefited?
How is the Employer Benefited?
Some "Qualified Benefits" Which Can Be Added, Include
Benefits Which are Specifically Excluded, Include
Plan Requirements

Please refer to our Health Insurance Section as we are developing the Employee Benefits Section


This document was last modified on July 26, 1999

Copyright ©1999, The Jacobs Company, All Rights Reserved