Simple cafeteria plans for small businesses

which is established and maintained by an eligible employer, and

with respect to which the contribution requirements of paragraph (3), and the eligibility and participation requirements of paragraph (4), are met.

The requirements of this paragraph are met if, under the plan the employer is required, without regard to whether a qualified employee makes any salary reduction contribution, to make a contribution to provide qualified benefits under the plan on behalf of each qualified employee in an amount equal to—

(i) a uniform percentage (not less than 2 percent) of the employee’s compensation for the plan year, or

(ii) an amount which is not less than the lesser of— (I) 6 percent of the employee’s compensation for the plan year, or (II) twice the amount of the salary reduction contributions of each qualified employee.

a uniform percentage (not less than 2 percent) of the employee’s compensation for the plan year, or

an amount which is not less than the lesser of—

(I) 6 percent of the employee’s compensation for the plan year, or

(II) twice the amount of the salary reduction contributions of each qualified employee.

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 requirements of subparagraph (A)(ii) shall not be treated as met if, under the plan, the rate of contributions with respect to any salary reduction contribution of a highly compensated or key employee at any rate of contribution is greater than that with respect to an employee who is not a highly compensated or key employee.

Subject to subparagraph (B), nothing in this paragraph shall be treated as prohibiting an employer from making contributions to provide qualified benefits under the plan in addition to contributions required under subparagraph (A).

For purposes of this paragraph—

(i) Salary reduction contribution The term “salary reduction contribution” means, with respect to a cafeteria plan, any amount which is contributed to the plan at the election of the employee and which is not includible in gross income by reason of this section.

(ii) Qualified employee The term “qualified employee” means, with respect to a cafeteria plan, any employee who is not a highly compensated or key employee and who is eligible to participate in the plan.

(iii) Highly compensated employee The term “highly compensated employee” has the meaning given such term by section 414(q).

(iv) Key employee The term “key employee” has the meaning given such term by section 416(i).

The term “salary reduction contribution” means, with respect to a cafeteria plan, any amount which is contributed to the plan at the election of the employee and which is not includible in gross income by reason of this section.

The term “qualified employee” means, with respect to a cafeteria plan, any employee who is not a highly compensated or key employee and who is eligible to participate in the plan.

The term “highly compensated employee” has the meaning given such term by section 414(q).

The term “key employee” has the meaning given such term by section 416(i).

The requirements of this paragraph shall be treated as met with respect to any year if, under the plan—

(i) all employees who had at least 1,000 hours of service for the preceding plan year are eligible to participate, and

(ii) each employee eligible to participate in the plan may, subject to terms and conditions applicable to all participants, elect any benefit available under the plan.

all employees who had at least 1,000 hours of service for the preceding plan year are eligible to participate, and

each employee eligible to participate in the plan may, subject to terms and conditions applicable to all participants, elect any benefit available under the plan.

For purposes of subparagraph (A)(i), an employer may elect to exclude under the plan employees—

(i) who have not attained the age of 21 before the close of a plan year,

(ii) who have less than 1 year of service with the employer as of any day during the plan year,

(iii) who are covered under an agreement which the Secretary of Labor finds to be a collective bargaining agreement if there is evidence that the benefits covered under the cafeteria plan were the subject of good faith bargaining between employee representatives and the employer, or

(iv) who are described in section 410(b)(3)(C) (relating to nonresident aliens working outside the United States).

A plan may provide a shorter period of service or younger age for purposes of clause (i) or (ii).

who have not attained the age of 21 before the close of a plan year,

who have less than 1 year of service with the employer as of any day during the plan year,

who are covered under an agreement which the Secretary of Labor finds to be a collective bargaining agreement if there is evidence that the benefits covered under the cafeteria plan were the subject of good faith bargaining between employee representatives and the employer, or

who are described in section 410(b)(3)(C) (relating to nonresident aliens working outside the United States).

The term “eligible employer” means, with respect to any year, any employer if such employer employed an average of 100 or fewer employees on business days during either of the 2 preceding years. For purposes of this subparagraph, a year may only be taken into account if the employer was in existence throughout the year.

If an employer was not in existence throughout the preceding year, the determination under subparagraph (A) shall be based on the average number of employees that it is reasonably expected such employer will employ on business days in the current year.

(i) In general If— (I) an employer was an eligible employer for any year (a “qualified year”), and (II) such employer establishes a simple cafeteria plan for its employees for such year,

then, notwithstanding the fact the employer fails to meet the requirements of subparagraph (A) for any subsequent year, such employer shall be treated as an eligible employer for such subsequent year with respect to employees (whether or not employees during a qualified year) of any trade or business which was covered by the plan during any qualified year.

(ii) Exception This subparagraph shall cease to apply if the employer employs an average of 200 or more employees on business days during any year preceding any such subsequent year.

If—

(I) an employer was an eligible employer for any year (a “qualified year”), and

(II) such employer establishes a simple cafeteria plan for its employees for such year,

an employer was an eligible employer for any year (a “qualified year”), and

such employer establishes a simple cafeteria plan for its employees for such year,

This subparagraph shall cease to apply if the employer employs an average of 200 or more employees on business days during any year preceding any such subsequent year.

(i) Predecessors Any reference in this paragraph to an employer shall include a reference to any predecessor of such employer.

(ii) Aggregation rules All persons treated as a single employer under subsection (a) or (b) of section 52, or subsection (n) or ( o ) of section 414, shall be treated as one person.

Any reference in this paragraph to an employer shall include a reference to any predecessor of such employer.

All persons treated as a single employer under subsection (a) or (b) of section 52, or subsection (n) or ( o ) of section 414, shall be treated as one person.