The passage of the Economic Growth and Tax Relief Reconciliation Act, and the promulgation of Final Treasury Regulations governing permitted mid-year election changes, have now set the menu for cafeteria plans.
The rules of etiquette for the offering have also been established. Employers are invited by Congress and the Internal Revenue Service to allow their employees to feast on an array of welfare and fringe benefits without uncertainty as to their present or future taxability.
EGTRRA also gives employers and their benefits advisors guidance on the proper way to administer participant requests for election changes to cafeteria or Internal Revenue Code Section 125 plans and avoid loss of the plans tax qualified status.
EGTRRA passed with much fanfare among pension plan providers because it contains many important revisions to the Internal Revenue Code rules governing pensions. However, EGTRRAs significance is not limited to its favorable impact on employee pension plans. EGTRRA is also newsworthy for the impact it has on welfare and fringe benefit plans.
Under EGTRRA, certain fringe benefits that were scheduled to lose their status as “tax-free” benefits at the end of this calendar year are made permanent.
Educational assistance programs under Code Section 127, for example, were scheduled for phase-out Dec. 31, 2001. Under EGTRRA, Code Section 127 will now permit employees to exclude from gross income certain amounts received from an employer for undergraduate education expenses for the foreseeable future.
Two additional exclusions from gross income were also added. Educational assistance for graduate-level courses, and employer-provided retirement advice and financial planning education, are excludable from an eligible employees gross income, effective Jan. 1, 2002.