Industry Experience

Section 125

Section 125: Cafeteria Plan Common Questions

This Legislative Brief offers answers to common questions regarding Section 125 plans (or cafeteria plans).

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Cafeteria Plans: Mid-Year Election Changes

In most cases, an employee may not change his or her elections under a cafeteria plan during the period of coverage (usually the plan year). However, the IRS allows employers to design their cafeteria plans to allow employees to change their elections during the plan year if certain events occur. This Legislative Brief provides an overview of IRS guidance regarding when participants may change their cafeteria plan elections during a plan year. 

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Nondiscrimination Tests for Cafeteria Plans

To qualify for favorable tax treatment, a Section 125 plan (or cafeteria plan) cannot discriminate in favor of highly compensated employees. This Legislative Brief provides a general overview of the three nondiscrimination tests for cafeteria plans: (1) the eligibility test; (2) the benefits and contributions test; and (3) the key employee concentration test. It also discusses exceptions and safe harbors that apply to the nondiscrimination tests.

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