401(k) Contributions passed through a Cafeteria Plan?

[401king]

Client's CPA told them their 401k contributions could be passed through a Cafeteria Plan, excluding them from being subject to FICA. This is news to me. CPA provided the attached PDF, which focuses the 401k component on Page 9.

...a cafeteria plan ... can include a profit-sharing or stock bonus plan that has a qualified cash or deferral arrangement under IRC §401(k). Amounts contributed under the employee's election are treated as non-taxable benefits for cafeteria plan purposes. IRC §125(d)(2)(B). After-tax employee contributions under a defined contribution plan subject to the non-discrimination rules of IRC §401(m), are also allowed. Furthermore, employer matching contributions may be made with respect to before-tax or after-tax employee contributions. Prop. Reg. §1.125-2, Q. and A.-4©.

Any additional insight? If passed through a Cafeteria Plan, does that mean the funds are added back to FICA wages? Or does this exemption really exist?

Chapter-14-Cafeteria-Plans-Employee-Fringe-Benefits-and-COBRA.pdf

[ETA Consulting LLC]

Client's CPA told them their 401k contributions could be passed through a Cafeteria Plan, excluding them from being subject to FICA. This is news to me. CPA provided the attached PDF, which focuses the 401k component on Page 9.

...a cafeteria plan ... can include

Please provide the full quote you are referencing. ...a cafeteria plan...can include ? What's in the "..."? Perhaps that would answer your question.

Good Luck!

[401king]

"Although a cafeteria plan cannot include plans providing for deferred compensation, it can include a profit-sharing or stock bonus plan that has a qualified cash or deferral arrangement under IRC §401(k). Amounts contributed under the employee's election are treated as non-taxable benefits for cafeteria plan purposes. IRC §125(d)(2)(B). After-tax employee contributions under a defined contribution plan subject to the non-discrimination rules of IRC §401(m), are also allowed. Furthermore, employer matching contributions may be made with respect to before-tax or after-tax employee contributions. Prop. Reg. §1.125-2, Q. and A.-4©."

[QDROphile]

Running elective deferrals through a section 125 plan essentially bridges to a 401(k) plan, but there are no extra tax benefits, no shortcuts on maintaining the 401(k)plan, and the extra connection usually causes confusion. In particular, the 401(k) deferrals continue to be included in FICA wages. Otherwise you might see more of such arrangements.

[401king]

Running elective deferrals through a section 125 plan essentially bridges to a 401(k) plan, but there are no extra tax benefits, no shortcuts on maintaining the 401(k)plan, and the extra connection usually causes confusion. In particular, the 401(k) deferrals continue to be included in FICA wages. Otherwise you might see more of such arrangements.

Thanks. So you're saying the amounts that go from the 125 to the 401k are "reclassified" as wages subject to FICA?

[masteff]

It's taxable under FICA and FUTA because it would be FICA and FUTA wages in the absence of the cafeteria plan.

FICA - IRS Code Section 3121(a)(5)(G): (G) under a cafeteria plan (within the meaning of section 125) if such payment would not be treated as wages without regard to such plan and it is reasonable to believe that (if section 125 applied for purposes of this section) section 125 would not treat any wages as constructively received

FUTA - IRS Code Section 3306(b)(5)(G): (G) under a cafeteria plan (within the meaning of section 125) if such payment would not be treated as wages without regard to such plan and it is reasonable to believe that (if section 125 applied for purposes of this section) section 125 would not treat any wages as constructively received

EDIT: note that these code sections are cited in that pdf on page 7, item H