What are Cafeteria Plans?
Governed under Section 125 of the Internal Revenue Code, Cafeteria Plans help you and your employees save money by using tax-free dollars to pay for group health insurance premiums, out-of-pocket medical expenses, the cost of dependent care and more. Section 125 "Cafeteria Plans" have earned their nickname because they allow employees to choose benefits a la carte from a menu of benefit offerings.
How Cafeteria Plans Work
Employers establish a menu of benefits by electing to offer group health or accident insurance, group term life insurance, disability benefits, dental insurance, vision insurance, or voluntary benefits. A Cafeteria Plan may also include a Premium Only Plan (POP), a Flexible Spending Account, Transportation and Parking reimbursement, and Dependent Care Assistance Plan as benefit options. Employees have the freedom to choose the options that best benefit them.
Employers save on payroll taxes (FICA, FUTA and SUI) and worker's compensation premiums.
Employees save on Federal, State and FICA taxes. The average employee saves 25-30% by funding benefits on a pre-tax basis through the Plan. When you consider the average family pays $800 - $2,500 per year on medical expenses, that's a significant savings!