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Section 125 Cafeteria Plans
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Q:  One of our employees is retiring and is currently subscribing to a Section 125 Cafeteria Plan and this is being paid for through payroll deduction. Do I need to offer the continuation of this coverage through COBRA after she retires? Thank you.


A:  A 125 Cafeteria plan allows employee's put a portion of their earnings, pre-taxed, into a Flexible Spending Account (FSA), which they can use to pay for medical bills or expenses. Some types of FSA's are: dependant care or for day care expenses, or for health care expenses.  Employer's who give their employee's an option to choose a 125 Cafeteria plan must offer a continuation of these plans upon a qualifying COBRA event. Employees, who choose to continue their health FSA under COBRA, will have to contribute 102% of their current accounts monthly contributions. Those contributions will be post-tax and then you will be able to get 100% of claims reimbursed.

Any tax advantages will be lost and if there is any unused balance in a health FSA account at the term of the COBRA coverage, it will be forfeited.


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