What is a Cafeteria Plan?

A cafeteria plans another name for Section 125 plan refers to a workplace benefits plan that allows employees to give way their taxable salary income that is for purchasing qualifying benefits through a company's plan. There is a list of options from which workers make their benefit plans' choices. There is a withholding of the proportion of workers' salaries for a premium payment, fees for the plan and additional benefits purposes. The benefits in this plan include; Retirement plans, health insurance, flexible spending account, durable medical equipment, Chiropractic services, dental and ophthalmic insurance to mention a few.

Cafeteria Plans Under Section 125

Cafeteria plans is essential part in practice of employing and retaining qualified workers. Section 125, cafeteria plans is significant in helping the employees to access important health and welfare benefits. There is a possibility of saving a large amount of money by being a member of the cafeteria plan more so the benefits they are capable of purchasing even if not offered in the plan. Employees can save on their income taxes in regards to social security and Medicare and Payroll taxes. Besides, employees do save about 7% of their payroll taxes for each dollar workers contribute to the cafeteria plan as a result of no taxes applied to the worker's contribution in the section 125 plan. Even though cafeteria plans are beneficial, sometimes they are either not good or provide fewer benefits than the employees could purchase separately from the cafeteria plan. For instance, the 401k plan of the cafeteria provides a limitation to investors for the few options. In IRA investments, investors obtain the same percentage of tax deduction in addition to possible better returns. In qualifying as a section 125 plan, an employer should be not favored employees consider an employees position or rank. There should be fairness in the administration of the plans as the benefits should be offered to all employees who qualify and not reserved for high salaried workers, managers or shareholders.