(c) The requirement is to determine the correct statement
regarding a “cafeteria plan” maintained by an employer.
Cafeteria plans are employer-sponsored benefit packages that
offer employees a choice between taking cash and receiving qualified
benefits (e.g., accident and health insurance, group-term life
insurance, coverage under a dependent care or group legal services
program). Thus, employees “may select their own menu of
benefits.” If an employee chooses qualified benefits, they are
excluded from the employee’s gross income to the extent allowed
by law. If an employee chooses cash, it is includible in the employee’s
gross income as compensation. Answer (a) is incorrect
because participation is restricted to employees only. Answer (b)
is incorrect because there is no minimum service requirement
that must be met before an employee can participate in a plan.
Answer (d) is incorrect because deferred compensation plans
other than 401(k) plans are not included in the definition of a