Who is eligible to participate in a cafeteria/flex plan?

Participation in a cafeteria/flex plan must be limited to employees. For this purpose, the term "employees" includes current and former employees of the employer (although a cafeteria plan cannot be established mainly for former employees). "Employees" does not include self-employed individuals.

Spouses and beneficiaries. However, a cafeteria plan may provide benefits for spouses and beneficiaries of participants. Although the spouse of a participating employee may not actively participate in a cafeteria plan (for example, a spouse may not be given the opportunity to select or purchase benefits offered by the plan), the spouse may benefit from the employee's selection of family medical insurance coverage under the plan.

Upon the death of a participant, the surviving spouse may be given the right to select among various settlement options with regard to a death benefit selected by the employee. Likewise, a surviving spouse may elect among permissible distribution options with respect to the deceased participant's 401(k) plan that is part of the cafeteria plan. A surviving spouse is not considered to be actively participating in the plan simply because he or she has such a right of selection or election after the employee's death.

Years of employment requirement. No employee can be required to complete more than three years of employment with the employer maintaining the plan in order to be eligible for participation in the cafeteria plan. This participation standard is based on years of employment and not on years or hours of service. The employment requirement must be the same for each employee.

Once an employee has satisfied the employment requirement, the employee must be permitted to participate in the cafeteria plan no later than the first day of the first plan year beginning after the date the employment requirement was met. This plan entry requirement does not apply if the employee was separated from service before the first day of that plan year.

Reprinted with permission. © CCH