FREQUENTLY ASKED CAFETERIA PLAN QUESTIONS |
Small Business Insurance Quotes |
FREQUENTLY ASKED CAFETERIA PLAN QUESTIONS A Cafeteria plan is a benefit plan maintained by an employer. Employees have the opportunity to select the particular benefits desired. The plan must offer at least one nontaxable benefit (e.g., accident or health insurance coverage) and at least one taxable benefit (e.g., cash). Treasury regulations require that the cafeteria plan be a written plan formally adopted prior to the first pre-tax salary reduction (Reg. Sec. 1.125-1 Q&A-2). Participating employees choose to redirect a portion of their salary from taxable cash compensation to nontaxable fringe benefits such as accident or health insurance coverage. They choose only those benefits they desire and pay for them by pre-tax or after-tax salary reduction. Plans are administered under regulations issued by Congress, the Internal Revenue Service (IRS) and the Department of Labor (DOL). The following questions and answers are based on informal correspondence with IRS and DOL officials. Of course, Plan Sponsors should consult with their own legal and/or tax counsel concerning these and any other plan administration issues. |
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