Cafeteria Plan

Summary

This template is a cafeteria plan under which an employer can offer employees a choice between compensation (or other taxable benefits) and non-taxable benefits (e.g., health insurance coverage) consistent with proposed regulations under I.R.C. § 125. This template includes practical guidance, drafting notes, and alternate and optional clauses. Cafeteria plans must comply with the Section 125 rules, including the adoption of a written plan document. I.R.C. § 125(d)(1), (l); Prop. Treas. Reg. § 1.125-1(c), 72 Fed. Reg. 43,938 (Aug. 6, 2007). The default language in this template provides for three common cafeteria plan benefit choices: pre-tax payment of health plan costs, a flexible spending arrangement (FSA) for reimbursement of qualified dependent care expenses (dependent care FSA), and an FSA for qualified medical expenses (health FSA). Optional language is also provided for other common cafeteria plan benefits, including pre-tax payment of vision, dental, disability insurance, and life insurance benefits, pre-tax contributions to a health savings account (HSA), and purchase of supplemental paid time off. For more information on this topic, see Cafeteria Plan Design and Compliance (IRC § 125), Section 125 Cafeteria Plan Rules Video, and Mid-Year Health Plan Enrollment Exceptions Video.