I have a client with a 457 plan and a cafeteria plan. They have two separate plan documents but it has recently come to my attention that they have one election form that includes both cafeteria benefits and a 457 deferral option. I have also been informed that a 457 plan cannot be combined with a cafeteria plan. When is a 457 plan combined with a cafeteria plan? Is the above scenario an impermissible combination? What is the evil that is being prevented?

Kurt,
We have a nonprofit client and we used a combined enrollment form but had two separate plan documents as you outlined. The IRS audited the organization for 403(b) compliance and the employees mistakenly gave the impression that the 403(b) plan was part of the Cafeteria Plan. By the way, there is a similar prohibition for these types of plans. We had to prove that the plans were not linked. It all worked out,but it was a hassle. We now use separate election forms.People who live as close to Ravenna as you do shouldn't have to put up with needless problems.

I forgot to add that the only cash or deferred arrangement plan allowed in a Cafeteria Plan is a 401(k) plan. Many employers avoid putting the 401(k) plan inside the Cafeteria to avoid the complications of additonal testing requirements.