Proposed Cafeteria Plan Regs Provide Discrimination Test

The proposed rule also makes it clear that the employer sponsoring the cafeteria plan “may retain forfeitures, use forfeitures to defray expenses of administering the plan or allocate forfeitures among employees contributing through salary reduction on a reasonable and uniform basis,” officials write.

The proposed rule would define terms such as officer, 5% shareholder, key employee, compensation and “highly compensated individual.”

Under a new test to determine when the election of benefits is discriminatory, the proposed regulations “provide that a cafeteria plan must give each similarly situated participant a uniform opportunity to elect qualified benefits and that highly compensated participants must not actually disproportionately elect qualified benefits,” officials write.

Still other provisions deal with matters such as calculating the amount of employer group life contributions that must be included in an employee’s income, use of debit cards to administer dependent care accounts, and the relationship between cafeteria plans and 401(k) plans.

Officials ask for comments on topics such as how salary reduction contributions could be based on employees’ tips and whether multiple employers may sponsor a single cafeteria plan.

A copy of the proposed rule is on the Web