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February 18, 2009

Cafeteria Plan

Your Guide

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Definition

A written plan-offered by an employer- that allows employees to choose between receiving cash or taxable benefits instead of certain qualified benefits for which the law provides an exclusion from wages. If an employee chooses to receive a qualified benefit under the plan, the fact that the employee could have received cash or a taxable benefit instead will not make the qualified benefit taxable. A cafeteria plan includes a flexible spending arrangement.

Generally, a cafeteria plan does not include any plan that offers a benefit that defers pay. However, a cafeteria plan can include a qualified 401(k) plan as a benefit. Also, certain life insurance plans maintained by educational institutions can be offered as a benefit even though they defer pay.

Referring Cite

IRC § 125, IRS Publication 15-B

Additional Helpful Information

Qualified benefits include the following

    • Accident and health benefits (but not Archer medical savings accounts (Archer MSAs) or long-term care insurance).
    • Adoption assistance.
    • Dependent care assistance.
    • Group-term life insurance coverage (including costs that cannot be excluded from wages).
    • Health savings accounts (HSAs). Distributions from an HSA may be used to pay eligible long-term care insurance premiums or qualified long-term care services.

A cafeteria plan cannot include the following benefits

    • Archer MSAs.
    • Athletic facilities.
    • De minimis (minimal) benefits.
    • Educational assistance.
    • Employee discounts.
    • Lodging on your business premises.
    • Meals.
    • Moving expense reimbursements.
    • No-additional-cost services.
    • Transportation (commuting) benefits.
    • Tuition reduction.
    • Working condition benefits.
    • Scholarships or fellowships

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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