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Cafeteria Plans Overview
Home » Insurance » Cafeteria Plans » Cafeteria Plans OverviewA cafeteria plan allows an employee to pay for certain employee benefits on a pre-tax rather than an after-tax basis. IRS Code Section 125 makes this option for employers and employees legal. The cafeteria plan is also known as Section 125 plan because of the section in the IRS code and they are also called flexible spending accounts. A cafeteria plan is a wise choice for an employee. By using pre-tax dollars to pay for medical and life insurance, sick leave and sometimes even disability benefits, you have lowered your tax base. Option benefits also include dental insurance, eye glasses, over-the-counter drugs and prescription drugs and elder care. A cafeteria plan doesn't include transportation, school tuitions or retirement benefits. This flexible compensation allows an employee to decide upon his/her own benefit package. You decide the amount of money you wish to allocate from your salary pre-tax to spend on expenses during a fiscal year. Employers have utilized cafeteria plans to refrain from providing expensive employee benefit plans to all employees. Employers have also introduced benefits such as dental care without increasing costs. There are several types of plans including a pre-tax conversion plan, multiple plans plus flexible spending accounts and employer credit cafeteria plans. The pre-tax conversion plan enables employees to be covered by contributory medical plans. Flexible accounts provide employees the ability to establish a medical flexible account. Employer credit cafeteria plans is a program where the employer contributes a number of credits that the employee can spend on employee benefit plans or contribute to a flexible spending account. Employees may choose low-cost medical plans and life insurance coverage without having to spend his/her own money. If the employee chooses a more expensive plan than provided by the employer, then he/she may make contributions under the pre-tax conversion feature.
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