Section 125 - Cafeteria Plans
Cafeteria plans do not concern what companies are serving for lunch. The benefit plans are packages that meet the specific requirements of and regulations of Section 125 of the Internal Revenue Service (IRS) Code. They provide enrollees an opportunity to receive certain benefits on a pretax basis. Employees in a cafeteria plan must be permitted to choose among at least one taxable benefit such as cash and one qualified benefit.
A qualified benefit is a benefit that does not defer compensation and is excludable from an employee’s gross income under a specific provision of the IRS code. Qualified benefits include accident and health benefits, adoption assistance, dependent care assistance, group term life insurance coverage and health savings accounts. Plan documents must contain descriptions of all benefits and rules pertaining to eligibility and elections.
