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Guest rocnrols2

419 Deduction Limits - Are Pre-tax Employee Contributions to a Cafeteria Plan included in determining the deduction limit?

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Guest rocnrols2

Company X maintains a cafeteria plan for its employees. LTD coverage above a base line percentage of pay is paid for by the employee with pre-tax salary reduction contributions. LTD benefits are self-funded using a nonexempt welfare benefit fund. Do the employees' pretax contributions to the LTD coverage have to get taken into account for purposes of determining the 419/419A limits?

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Yes, although the calculation is under 419, not 419A. Section 419 provides that "[th]e term “qualified direct cost” means * * * the aggregate amount (including administrative expenses) which would have been allowable as a deduction to the employer with respect to the benefits provided during the taxable year, if— (i) such benefits were provided directly by the employer * * *."

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