ERISA/Benefits - Cafeteria Plans
Cafeteria plans are welfare benefit plans established under Section 125 of the Internal Revenue Code (the Code), and are commonly referred to as Section 125 plans. Participants are permitted to choose amongst two or more nontaxable benefit options, purchasing them with pre-tax dollars or taking their unreduced cash compensation.
Benefits that may be offered under a cafeteria plan include:
- Short-term or long-term disability
- Group term life insurance
- Accidental death and dismemberment (AD&D)
- Dependent care assistance program
- Adoption assistance program
- Health flexible spending account (Health FSA)
- Participation in a 401(k) cash or deferred arrangement that is part of a profit-sharing plan or stock bonus plan
- COBRA continuation coverage premiums
- Contributions to a Health Savings Account (HSA)
- Post-retirement group life insurance plans maintained by certain educational organizations that satisfy the conditions of Code Section 125(d)(2)(C)
Ineligible benefits under a cafeteria plan include:
- Deferred compensation
- Any taxable benefit
- Fringe benefits under Code Section 132
- Dependent life insurance
- Long-term care insurance or services
- Elective deferrals to a Code Section 403(b) plan
- Scholarships under Code Section 117
- Educational assistance under Code Section 127
- Employer-provided meals or lodging under Code Section 119
- Health Reimbursement Accounts (HRAs)
- Archer Medical Savings Accounts (MSAs)
Cafeteria plans may not discriminate in favor of highly compensated employees with respect to either eligibility to participate or contributions and benefits. Further, benefits to key employees cannot exceed 25% of all benefits to all employees under the plan.
For a discussion of required amendments to cafeteria plans by June 30, 2011, see "June 30th Deadline for Amendments to Cafeteria Plans".
For a discussion regarding how the U.S. Supreme Court’s 2011 decision in the Amara case impacts employers sponsoring cafeteria plans, see "Supreme Court Decision Underscores Importance of Maintaining Plan Documents and Summary Plan Descriptions for Employers".
For a discussion regarding 2010 year-end compliance issues for employee benefit plans, see "2010 Year-End Compliance Checklist for Employee Benefit Plans".
For a discussion regarding the IRS’ postponement of Form W-2 reporting of the value of employer-provided health care benefits, see "IRS Form W-2 Reporting for Employer-Provided Health Care Delayed".