Section 125 Cafeteria Plans

Cafeteria plans are a cost-effective way to provide participants a variety of benefits based on their unique individual or family circumstances.Cafeteria plans are generally a combination of Premium Only Plans (POP), Medical Flexible Spending Accounts (FSA), and Dependent Care Accounts (DCAP). Other options may include: 401(k) plans; group insurance plans for major medical; life/AD&D; dental; vision; disability; non-cash value worksite supplemental plans for cancer; heart/stroke; and, accident plans.

What is a cafeteria plan?

An employer can adopt a cafeteria plan to allow its employees to utilize pre-tax dollars to pay for certain expenses, (e.g. insurance premiums, out-of-pocket unreimbursed expenses, and dependent care). Cafeteria plans have become a standard in today’s market and for good reason. Employers take advantage of cafeteria plans because it allows them to provide a powerful benefit to their employees, while also saving on payroll taxes. Employees utilize cafeteria plans because they are able to pay for certain benefits with pre-tax dollars, giving them more take-home pay.

Health Flexible Savings Account (FSA)

A health account program allows employees to have certain health care expenses reimburses, subject to certain maximum amounts.  Employees and dependents use a health FSA to pay for medical expenses not reimbursed through insurance or any other arrangements.  These include, but not limited to, co-pays, deductibles, eyeglasses and orthodontia.  A health FSA also includes reimbursements for over-the counter medications.

A health FSA plan offers annual savings of 20%-28% on out-of-pocket medical expenses.  An employee estimates non-reimbursed medical expenses for the year and has that amount set aside in a health FSA account.  The money is deducted from the employee paycheck before taxes, reducing the amount of federal, state, Social Security and Medicare taxes paid on that amount.

Dependent Care Assistance Program (DCAP)

For employees who spend money on child care while at work, a DCAP is a logical choice. The money is deducted from the employee paycheck before taxes reducing the amount of federal, state, Social Security and Medicare taxes paid on that amount. The savings range from 20% to 28% percent depending upon the tax bracket.