8897 / What is a cafeteria plan? What information must an employer provide in order to establish a cafeteria plan for its employees?

Some cafeteria plans provide for salary reduction contributions by the employee and others provide benefits in addition to salary. In either case, the employee-participants are given the opportunity to purchase certain benefits with pre-tax dollars.

A plan may provide for automatic enrollment whereby an employee’s salary is reduced to pay for “qualified benefits” unless the employee affirmatively elects cash.²

Under the 2007 proposed regulations (effective for plan years beginning on or after
January 1, 2009), the written plan document must contain:

(1)  a specific description of the benefits, including periods of coverage;

(2)  the rules regarding eligibility for participation;

(3)  the procedures governing elections;

(4)  the manner in which employer contributions are to be made, such as by salary reduction or non-elective employer contributions;

(5)  the plan year;

(6)  the maximum amount of employer contributions available to any employee stated as (a) a maximum dollar amount or maximum percentage of compensation or (b) the method for determining the maximum amount or percentage;

(7)  a description of whether the plan offers paid time off, and the required ordering rules for use of non-elective and elective paid time off;

(8)  the plan’s provisions related to any flexible spending arrangements (FSA) included in the plan;

(9)  the plan’s provisions related to any grace period offered under the plan; and

(10)  the rules governing distributions from a health FSA to employee health savings accounts (HSAs), if the plan permits such distributions (see Q 8834).³