Can a Cafeteria Plan offer a benefit that defers the receipt of compensation?
A. No. A Cafeteria Plan cannot offer a benefit that defers the receipt of compensation except for contributions under a qualified cash or deferred arrangement defined in ‘Code Section 401(k). (Reg. Sec. 1.125-1 Q&A-7) A plan that permits employees to carry over unused elective contributions or plan benefits from one plan year to another operates to defer compensation. Thus, this benefit would not be a qualified Cafeteria Plan benefit. Similarly, a Cafeteria Plan operates to permit the deferral of compensation if the plan permits participants to use contributions from one plan year to purchase a benefit that will be provided in a subsequent plan year. (Reg. Sec. 1.125-2 Q&A-5) Q.
