3502 / What benefits may be offered under a cafeteria plan?
A qualified benefit is a benefit that is not includable in the gross income of the employee because of an express statutory exclusion ahnd that does not defer receipt of compensation. Contributions to Archer Medical Savings Accounts ( Q 422), qualified scholarships, educational assistance programs, or excludable fringe benefits are not qualified benefits. No product that is advertised, marketed, or offered as long-term care insurance is a qualified benefit.3
With respect to insurance benefits, such as those provided under accident and health plans and group term life insurance plans, the benefit is the coverage under the plan. Accident and health benefits are qualified benefits to the extent that coverage is excludable under IRC Section 106.4 Accidental death coverage offered in a cafeteria plan under an individual accident insurance policy is excludable from the employee’s income under IRC Section 106.5 A cafeteria plan can offer group term life insurance coverage on employees participating in the plan. Coverage that is includable in income only because it exceeds the $50,000 excludable limit under IRC Section 79 also may be offered in a cafeteria plan.6 The application of IRC Section 79 to group term life insurance and IRC Section 106 to accident or health benefits is explained in Q 240 to Q 249 and Q 8789.
Accident and health coverage, group term life insurance coverage, and benefits under a dependent care assistance program remain “qualified” even if they must be included in income because a nondiscrimination requirement has been violated.7 (See Q 3625.) Health coverage and dependent care assistance under flexible spending arrangements (FSAs) are qualified benefits if they meet the requirements explained in Q 3515.