Cafeteria Plan Compliance Question

CATEGORY: Public Education Matters
CLIENT TYPE: Public Education
DATE: Apr 01, 2024

Question:  Can an employer offer a 457(b) deferred compensation plan as a cafeteria plan benefit?

Answer:  No.  Section 125 cafeteria plans may not offer any benefit that defers the receipt of compensation, with limited exceptions for 401(k) plans and certain health savings accounts.  (26 U.S.C. section 125(d)(2).)  Since 457(b) plans are deferred compensation plans, they cannot be offered as a cafeteria plan benefit.  For example, an employer cannot allow employees to make elections to contribute to a 457(b) plan through a cafeteria plan’s salary reduction agreement process or allow an employee to place unused employer contributions from the cafeteria plan directly into a 457(b) plan.  While employers may certainly offer a 457(b) plan, it must be offered and administered outside of and unrelated to a cafeteria plan.

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