Cafeteria Plans
Premier Pension Solutions
Cafeteria Plans

Cafeteria plans have become one of the fastest growing fringe benefits offered. These plans help attract and maintain good employees and are a simple way to reduce employee taxes as well as employer tax liability while providing quality benefits to your employees.

A cafeteria plan is a welfare benefit plan specifically authorized by Section125 of the Internal Revenue Code. Generally, employees are given a choice to “redirect” part of their salary. Each employee then uses the “redirected” part of his salary to purchase benefits from a “menu” of non-taxable benefits offered by the plan (hence the term “cafeteria”). A cafeteria plan allows employees to pay certain insurance premiums as well as medical and dependent care expense with pre-tax dollars. Amounts redirected by an employee to a cafeteria plan escape federal, state and FICA taxation. The employer saves FICA match amounts contributed to the cafeteria plan, thus reducing the employer tax liability. 

Employer tax savings generally offsets cost of plan administration.

A cafeteria plan may be set up to include all or any combination of the following:

Premium Conversion – allows employees to pay their share of premiums for health insurance, group term life insurance, disability insurance or cancer insurance with pre-tax dollars.

Medical Flexible Spending Account – allows employees to pay for common out-of-pocket medical expenses (not covered by insurance) such as deductibles, co-pays and vision and dental care with pre-tax dollars. 

Dependent Care Flexible Spending Account – offers employees the opportunity to pay for most child/dependent care expenses with pre-tax dollars that, in some cases, provides a more substantial tax savings than the tax credit they would get on the tax return.

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