HRM Asynchronous 15 April

Cafeteria Plan- One Page Write Up

A cafeteria plan also called a flexible benefits plan, allows employees to choose from a menu of

optional benefits the ones that best fit their individual needs. Thus, employees can customize

their benefits packages. In a cafeteria plan, benefits required by law (e.g. Social Security,

unemployment compensation, workers’ compensation) and those mandated by company policies

or labor agreements are supplemented by a list of other benefits to which employees can

subscribe. Employees’ choices of optional benefits are limited only by the total benefit dollars

available and the variety of benefits offered by the employer. Optional benefits that are often part

of cafeteria plans include dental insurance, vision care, group-term life insurance, child care, and

disability insurance. Many companies offer some form of a cafeteria benefit plan to their

employees, although smaller companies are less likely to offer flexible benefits than larger

companies.

Most cafeteria plans are compliant with Section 125 of the Internal Revenue Code. This means

that they meet specific requirements set out by the Internal Revenue Service. Such plans offer the

potential of cost savings to both employers and employees, particularly because amounts spent

by either the employer or the employee are spent out of pre-tax earnings. Thus, both employers

and employees may save on Federal Insurance Contributions Act payroll taxes and the employee

may save on state and federal income taxes as well.