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Cafeteria plans, or plans governed by IRS Code Section 125, allow employers to help employees pay for expenses such as health insurance with pre-tax dollars. Employees are given a choice between a taxable benefit (such as cash) and two or more specified pre-tax qualified benefits (health insurance, for example). Employees can select the benefits they want, just like an individual standing in the cafeteria line at lunch.
IRS rules limit the types of benefits that can be offered through a cafeteria plan to:
- Coverage under an accident or health plan
- Dependent care assistance benefits (DCAPs)
- Group term life insurance
- Paid time off, which allows employees the opportunity to buy or sell paid time off days
- 401(k) contributions (subject to certain restrictions)
- Adoption assistance benefits
- Health savings accounts (HSAs)
Life happens – an employee may experience life changes, like marital status or the number of dependents, that are recognized as permitted election change events.
This updated guide helps to understand which events may trigger a permitted change in cafeteria plan elections.
This information has been prepared for UBA by Fisher & Phillips LLP. It is general information and provided for educational purposes only. It is not intended to provide legal advice. You should not act on this information without consulting legal counsel or other knowledgeable advisors.
