WHAT IS A CAFETERIA OR FLEXIBLE BENEFITS PLAN?

A cafeteria plan may also be referred to a flexible benefits plan. Generally, this is a plan which offers participants a choice between one or more qualified benefits (options of nontaxable benefits) and cash. If an employee elects a voluntary salary reduction, the result is generally recognized as “cash”. “Pre-tax” benefits can then be offered to employees, while elections can be made both pre and post-tax.

As long as there is one non-taxable benefit offered to participants, a cafeteria plan exists (multiple benefits may also be offered). Employer “contributions” or “credits” do not have to be offered to be considered a cafeteria plan (non-discrimination rules apply).

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