Cafeteria Plans - Can the money given to an employee be directed to th

[Guest WyrickL]

An employer gives employees a fixed amount every quarter to use for their cafeteria benefits. If an employee does not use all of the amount given can the amount left over at the end of the year be directed to their 401(k) plan as an employer contribution? If so how is this taken into account for testing purposes?

[SLuskin]

There was legislation pending on this, but it never went anywhere. As far as I know, the use it or lose it still applies.

[GBurns]

You have a very odd plan design.

In a "Benefits Credit" plan design the employer makes available an amount which the employee spends for benefits. If it is not enough the employee contributes the needed amount. . In many cases the unused amount is directed to a 401(k).

For example, the employer commits to $400 per month, the employee elects single coverage HMO for $250, Dental $20, Vision $15, STD $25, FSA $50 leaving a balance of $40 which goes to the 401(k).

If the employees have to make an annual election how can they use money that is given quarterly? The employee is already committed and has a salary reduction agreement that cannot be changed easily so what could the employee do with a quarterly allocation?