Can a governement agency have a cafeteria plan? If so, what are the reporting requirements? 5500?, etc.?

A governmental instrumentality can adopt a Cafeteria Plan just like any private sector employer. Because Section 125 plans are Statutory Fringe benefits, the Internal Revenue Code requires a plan document and annual filings of the 5500 form, governmental agencies have to comply even though they are exempt from ERISA compliance.

Strange but true, ain't it?

Statutory authority is section 6039D of the Internal Revenue Code. The instructions to IRS Form 5500 also make this clear.

I guess the government is trying to keep stats on how much money flows through these pre-tax programs, so it wouldn't matter whether the employee is employed by a governmental entity or not. You wonder how many governmental employers are out of compliance.