Page:United States Statutes at Large Volume 100 Part 3.djvu/696

 100 STAT. 2504

PUBLIC LAW 99-514—OCT. 22, 1986

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"(A) under which the employer provides employees with dependent care assistance, and "(B) which meets the requirements of paragraphs (2) through (6) and section 89(k).", and (B) by striking out paragraph (6) thereof, and redesignating paragraph (7) as paragraph (6).

(d) COORDINATION WITH CAFETERIA PLANS.—

(1) IN GENERAL.—Section 125 (relating to cafeteria plans) is amended to read as follows: "SEC. 125. CAFETERIA PLANS.

"(a) GENERAL RULE.—In the case of a cafeteria plan— "(1) amounts shall not be included in gross income of a participant in such plan solely because, under the plan, the participant may choose among the benefits of the plan, and "(2) if the plan fails to meet the requirements of subsection (b) for any plan year— "(A) paragraph (1) shall not apply, and "(B) notwithstanding any other provision of part III of this subchapter, any qualified benefits received under such ^. cafeteria plan by a highly compensated employee for such plan year shall be included in the gross income of such employee for the taxable year with or within which such plan year ends. "(b) PROHIBITION AGAINST DISCRIMINATION AS TO ELIGIBILITY TO PARTICIPATE.— "(1) HIGHLY COMPENSATED EMPLOYEES.—A plan shall be

treated as failing to meet the requirements of this subsection unless the plan is available to a group of employees as qualify under a classification set up by the employer and which the Secretary find not to be discriminatory in favor of highly compensated employees. "(2) KEY EMPLOYEES.—In the case of a key employee (within the meaning of section 416(i)(l)), a plan shall be treated as failing to meet the requirements of this subsection if the qualified benefits provided to key employees under the plan exceed 25 percent of the aggregate of such benefits provided for all employees under the plan. For purposes of the preceding sen* tence, qualified benefits shall be determined without regard to the last sentence of subsection (e). ^ "(3) EXCLUDABLE EMPLOYEES.—For purposes of this subsection, there may be excluded from consideration employees who may be excluded from consideration under section 89(h). "(c) CAFETERIA PLAN DEFINED.—For purposes of this section— "(1) IN GENERAL.—The term 'cafeteria plan' means a plan which meets the requirements of section 89(k) and under "(A) all participants are employees, and "(B) the participants may choose— "(i) among 2 or more benefits consisting of cash and qualified benefits, or "(ii) among 2 or more qualified benefits. "(2) DEFERRED COMPENSATION PLANS EXCLUDED.—
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"(A) IN GENERAL.—The term 'cafeteria plan' does not include any plan which provides for deferred compensation. \:f-.\'u.' "(B) EXCEPTION FOR CASH AND DEFERRED ARRANGEMENTS.—Subparagraph (A) shall not apply to a profit-shar-

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