401(k) w/in Cafeteria

[Guest Bethmay]

If an employer all ready had a 401(k) Plan & TPA and a separate FSA Plan & TPA, why would an employer want to go to the trouble of combining them? What are the advantages?

[JanetM]

You can't combine them into one plan. You could move to single TPA in effort to reduce cost. Is that what you mean?

[Guest TXCafe]

You can't combine them into one plan. You could move to single TPA in effort to reduce cost. Is that what you mean?

There is also the ability to do the 401K contributions through the Section 125 Cafeteria Plan but that's not really an option that makes much sense any more since you can do 401K contributions without a Cafeteria Plan. I agree that moving to a single TPA may be a good method of reducing administrative costs. Also, if the Sec 125 TPA does nondiscrimination testing they can use some if not all of the same employee info to test the 2 plans.

[QDROphile]

You can run a 401(k)plan through a cafeteria plan, but the differences in administration between the retirement and welfare benefits are so different that is it easy to see how one could create confusion and not so easy to see advantages. It is easier for employees to see them as two different things.

Unless someone can run you through both sides of the proposition and convince you of a net advantage, don't do it. If the main arguments are a single plan and single plan document, you are listening to someone who is blowing smoke.

[Guest Bethmay]

You can run a 401(k)plan through a cafeteria plan, but the differences in administration between the retirement and welfare benefits are so different that is it easy to see how one could create confusion and not so easy to see advantages. It is easier for employees to see them as two different things.

Unless someone can run you through both sides of the proposition and convince you of a net advantage, don't do it. If the main arguments are a single plan and single plan document, you are listening to someone who is blowing smoke.

Thank you all for your comments, I just thought I was missing something. I don't think so based on your comments.

[Lori Friedman]

While it's true that 401(k) elective deferrals can be elected through a 125 plan, doesn't doing so subject the 401(k) plan to an additional -- and avoidable -- layer of rules and testing?

[Guest TXCafe]

While it's true that 401(k) elective deferrals can be elected through a 125 plan, doesn't doing so subject the 401(k) plan to an additional -- and avoidable -- layer of rules and testing?

Yes. It would have to be tested along with any other benefits under the 125 Plan with the Section 125 Nondiscrimination Testing. I don't think doing 401k contributions through a 125 Plan makes any sense at all since they already have the pre-tax element through the 401k. I'm pretty sure I read somewhere that it's kind of an outdated rule that was in place before 401k's were pre-tax? I'm not very well-versed on 401K's so that could be totally wrong. But there's references to allowing it all through the regulations that govern 125s. Such as the election change rules...there's one that allows for a change in elections to a 401k if you change your 401k contribution amount.