401K and Cafeteria Plans

[Guest Lex]

Have you ever seen a benefit structure in which the 401k plan was part of a larger cafeteria plan? The participants can elect to have contributions to go to either. They could have the money go to the 401k plan or to the cafeteria plan. I think there are CODA issues with such a structure. It seems that unless the employee could elect cash, the contribution to the 401k would be an employer non-elective. This, I would think, could cause discrimination issues- as those who elected the 401k would have be considered benefiting and those that elected the cafeteria contribution or cash would be considered as not benefiting. It seems to me the Plan could have coverage issues.

Any insight? Sources? Have you seen anything like this?

[GBurns]

It is very popular not only with public sector employers who do have a 401k, but also with some larger employers. It is very often used in Benefits Credit cafeteria plans.

As for the "CODA" issue thatyou raised, since you stated that it is within a Cafeteria Plan it must therefore already have a cash option. Without a cash option there would be no Cafeteria Plan.

Re your discrimination issue ... What do you mean by "not benefiting"? The money was non-discriminatingly provided to the employees, All plans are available to all eligible employees. How can it then be discriminatory after the employee makes their unrestricted choice? Would the medical plan be discriminatory if 1 employee chose medical and 401k while another who did not need the medical chose Dental, Vision and 401K?

[Guest Lex]

When I am referring to "not benefitting" I am referring to 410b coverage testing. I agree that if the Plan allows employees to receive cash in lieu of deferring to the 401k or medical plan, that all could be considered benefitting as they have a choice.

What has been proposed is an arrangement in whcih the employees could not elect cash. That being the case it would not be a CODA. Therefore, any contribution to either plan would be an employer non-elective. My thinking is that those that did not get the employer non-elective in the 401k Plan would be considered as non-benefitting under the 410b coverage rules. As such the ratio % test could fail.

Do you agree? Any information on the impact of a Benefits Credit Plan on 5500 filing? I assume the 401k would still have a separate trust and therefore its own 5500.