What is a Cafeteria Plan?
The employer will give each employee a specific amount they may spend each month and list the cost of each separate benefit on the Cafeteria plan menu. The allotted amount may not be the same for each employee, and factors such as salary, seniority or age may affect the amount that an employee is provided. To establish a Cafeteria plan, the employer must set up a separate bookkeeping account for the management of funds in and out of this account. Funds received into this account can be through employer contributions, employee contributions through a salary reduction, or a combination of both. The employer must not contribute more than 80% of the total contributions that go into this benefits account, making the required employee contribution requirement greater than 20%. If an employee elects to enroll in benefits that exceed their alotted amount, they will be responsible for 100% of the difference. However, this amount may be deducted from their paycheck pre-taxes. A standard Cafeteria Plan menu may look something like this for an Employee Allotment of $500:
If an employee elects all benefits on the menu, totaling $570, they will need to pay the $70 over allowance in full. If they elect benefits that do not exceed their allotment, they may request the unused balance as a cash benefit. Additional contributions from an employee are not permitted in order to increase their cash benefit in order to take advantage of the pre-tax savings. 1 CommentLeave a comment |
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What is a Cafeteria Plan?
Also known as Flexible Benefit Plans, a Cafeteria plan offers an employee of a company the option to choose from a variety of employer-sponsored benefits based on personal needs. As the name might suggest, the many benefits are listed as choices, just like a restaurant might list their choices, allowing the patrons to choose whichever item sounds the most appealing to them. An employer may decide which benefits to offer under the Cafeteria plan, but the most common include: health insurance, life insurance, vision benefits, dental insurance, disability insurance and even cash.
I have worked under companies that provided these type of benefit plans and have had mixed experiences. It’s great of course to be able to avoid paying taxes for your individual health insurance, because thats the alternative, not group. I mean, if your employer already offered you a group health plan, then you would probably not think to highly of this idea. But on the other hand, if you have no insurance then this cafeteria health plan is better than before. From what I have seen it can be a hard sell for an employer to convince his or hers employees on parting with more of their wages. If your employer is offering you a cafeteria plan, make sure they inform you well about your options and how it will affect you. Also check if your spouse and children are covered under such a health plan as that is not always the case.
Comment by Alvin — May 27, 2009 @ 8:05 am