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Cafeteria Plans

Cafeteria plans aren’t actual benefits themselves, but like a cafeteria line, allows employees to choose options that are right for them.  With a cafeteria plan, an employee can choose between receiving cash or benefits that the law provides an exclusion from wages.  Essentially, a cafeteria plan is a form of a flexible spending arrangement for benefits are exempt from taxes.  Some benefits in the plan are paid for the by employer and others by the employee through withhold a portion of their pre-tax salary.

A cafeteria plan may include the following:

Accident and Health benefits (excluding long-term care insurance)

Adoption assistance

Dependent care assistance

Group-term life insurance (including costs that cannot be excluded from income)

Health Savings Accounts (HSA’s)

Qualified retirement savings plans [i.e., 401(k)]

Benefits that cannot be included are:

Athletic facilities

De minimis benefits (These are things of minimal value such as personal use of employer provided cell phone, meals, parties/picnics, transportation allowance.)

Education assistance

Employee discounts

Moving expense reimbursements

Working conditions benefits (i.e., company car, on-the-job training, out placement services)

It’s more important to understand the benefits offered in a cafeteria plan more than the plan itself.  The main benefit to an employer is the money saved on payroll taxes by setting up a cafeteria plan.

Next up:  Other Benefits