Cafeteria Plan

(redirected from Cafeteria Plans)
Also found in: Dictionary, Medical.

Cafeteria Plan

1. An employee benefit in which an employee may contribute so much of his/her pretax income into a special account that may be used for a broad range of purposes. One may use the funds in a cafeteria plan for matters such as medical expenses, life insurance premiums, or other things. This allows the employee to structure his/her employee benefits in a way that best suits their needs for a given period of time. For example, a young, healthy employee may have the ability to choose a less expensive, less comprehensive insurance plan than he/she might otherwise receive from an employer. It is formally called a Section 125 plan. See also: Flexible Spending Account.

2. An employee benefit plan in which employees may choose from multiple options. For example, an employee may choose among a health insurance plan with no deductible, one with a $500 deductible, or one with a $1,000 deductible.

Cafeteria plan.

Some employers offer cafeteria plans, more formally known as flexible spending plans, which give you the option of participating in a range of tax-saving benefit programs.

If you enroll in the plan, you choose the percentage of your pretax income to be withheld from your paycheck, up to the limit the plan allows. You allocate your money to the parts of the plan you want to participate in.

For example, you can set aside money to pay for medical expenses that aren't covered by insurance, for child care, or for additional life insurance coverage. As you incur these kinds of expenses, you are reimbursed from the amount you have put into the plan.

Since you owe no income tax on the money you contribute, you actually have more cash available for these expenses than if you were spending after-tax dollars.

However, you must estimate the amount you're going to contribute before the tax year begins, and you forfeit any money you've set aside but don't spend. For example, if you've set aside $1,500 for medical expenses but spend only $1,400, you lose the $100.

In some plans the deadline for spending the money in your flexible spending account is December 31. Other plans provide up to a three-month extension.

Cafeteria Plan

A plan wherein an employer offers a choice of salary or specified nontaxable fringe benefits from which participating employees may select. The plan may be funded with employer contributions, employee contributions (usually through salary reduction agreements) or a combination of both. Also called a section 125 plan.
References in periodicals archive ?
Cafeteria plans reimbursing premiums for individual health coverage with employer contributions if the employer is not participating in a Small Business Health Options Program (SHOP) Marketplace plan;
Other transition rules: The notice clarifies that employers may not offer qualified health plans through an exchange as an option in an employer cafeteria plan subject to Sec.
In other cafeteria plans, the employees are not necessarily given an allowance, but are offered a direct payroll deduction.
First, cafeteria plans and voluntary benefits are fairly foreign to smaller employers.
Usually only larger employers offer cafeteria plans with a full menu of benefits, but Section 125 cafeteria plans can also be set up for a single purpose such as paying health insurance premiums.
Dollar Limitations on Health FSAs under Cafeteria Plans: For a health FSA to be a qualified benefit under a cafeteria plan, the maximum amount available for reimbursement of incurred medical expenses of an employee, the employee's dependents and any other eligible beneficiaries of the employee, under the health FSA for a plan year, cannot exceed S2,500.
However, panelist Gary Kushner stated a major factor that discourages small businesses from offering cafeteria plans is that self-employed individuals, such as sole proprietors, more than 2 percent shareholders in a Subchapter S corporation (Sub-S Corporation), members in a limited liability company (LLC) and partners in a partnership are precluded from participating in cafeteria plans.
Health premium-only cafeteria plans cost about $100 per year per employee to administer, and several national companies compete for this business.
Establish a voluntary correction program for cafeteria plans similar to the Employee Plans Compliance Resolution System (EPCRS).
Updated information includes revised discussions on federal laws impacting flexible benefits plans, such as COBRA, HIPAA Portability, HIPPAA Privacy and Security, ERISA, and tax nondiscrimination laws; information on benefits offered in conjunction with flexible benefit plans such as cafeteria plans, health FSAs, dependent care FSAs, health reimbursement arrangements, and health savings accounts; the health savings account improvements set in the Health Opportunity Patient Empowerment Act of 2006; rules regarding qualified HAS distributions; and clarifications from the IRS regarding electronic payment cards offered in conjunction with employee health benefit plans.
It also added Section 125 to the Internal Revenue Code, which provides the basis for flexible benefit plans commonly known as cafeteria plans, giving participants the ability to avoid taxation on wages which are deferred into the plan.
In another action, the AICPA commended the IRS and Treasury for re-proposing regulations under section 125 relating to cafeteria plans.