CAFETERIA PLAN BENEFITS

Q.  Our company maintains a premium-only cafeteria plan (POP) under which employees who elect company-sponsored major medical coverage can pay their share of the premiums with pre-tax dollars. We are thinking of amending our cafeteria plan to add some other benefits. We know that health flexible spending accounts (FSAs) and dependent care assistance programs (DCAPs) can be offered under a cafeteria plan, but what other benefits can we offer?

A.  Employer-sponsored group major medical coverage, health FSAs, and DCAPs are the most common cafeteria plan benefits. Other common benefits that can be offered under a cafeteria plan include the following:

• health savings account contributions;

• group-term life insurance on the life of an employee (although the cost of coverage in excess of $50,000, less any amount paid after-tax, is includible in the employee's gross income);

• long-term or short-term disability coverage;

• coverage under other arrangements that qualify as accident or health plans under the law (for example, employer-sponsored group dental or vision coverage); and

• purchase or sale of paid time off (PTO), for example, vacation, sick, or personal days.

Of course, various rules and issues may need to be addressed before offering these benefits under the cafeteria plan. For example, specific requirements must be met when the purchase or sale of PTO is offered as a benefit under a cafeteria plan. And cafeteria plans generally cannot be used to pay or reimburse premiums for individual insurance policies that provide major medical or other non-excepted coverage. Reimbursing premiums for other types of individual insurance coverage raises issues under ERISA, COBRA, and other laws.