TN 27 (05-12)

RS 01402.030 General Cafeteria Plans

A. Definitions for plans and benefits

1. Cafeteria plan

A cafeteria plan is a written benefit plan maintained by the employer for the benefit of its employees, where all participants are employees, and each participant has the opportunity to select two or more benefits consisting of cash and qualified benefits.

NOTE: The Internal Revenue Service (IRS) determines whether a plan is a cafeteria plan under section 125 of the Internal Revenue Code (IRC) and whether any benefit under the plan is a qualified benefit. The Social Security Administration (SSA) does not make determinations.

Reference:

Social Security Act, Section 209(a)(4)(I)

2. Qualified benefits

Cafeteria plans may offer qualified benefits, which are statutory and nontaxable. These include:

  • Accident or health insurance plans (section 107 of the IRC);

  • Dependent care assistance program (section 129 of the IRC);

  • Group-term life insurance up to $50,000 (section 79 of the IRC); and

  • Group legal service plans (section 120 of the IRC).

Specifically excluded from a cafeteria plan are:

  • certain fringe benefits which qualify as a non-additional cost service, qualified employee discount, working condition fringe, or de minimus fringe (under section 132 of the IRC);

  • educational assistance programs (section 127 of the IRC);

  • qualified transportation provided by the employer (section 124 of the IRC);

  • scholarship and fellowship grants (section 117 of the IRC); and

  • deferred compensation plans (except profit sharing or stock bonus plans that include a qualified cash, or deferred compensation arrangement under section 401(k)(2) of the IRC).

SSA determines the Social Security status of each statutory nontaxable benefit selected separately under the wage exclusion provisions of sections 209(a)-(k) of the Act.

B. Constructive receipt

1. Overcoming constructive receipt

Funding for cafeteria plans are mostly through salary reduction agreements, see RS 01402.010. We normally consider these contributions as wages under the constructive receipt principle. If the IRS rules that the plan meets the requirements of section 125 of the IRC, they qualify as wage exclusions, which provide a specific exception to the constructive receipt principle.

2. Presumption of consistency with IRC

We consider an employer's treatment of benefit plans consistent with the IRC, absent any evidence to the contrary.


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RS 01402.030 - General Cafeteria Plans - 05/15/2012
Batch run: 05/15/2012
Rev:05/15/2012