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Flexible Benefits/ Cafeteria Plans
National Summary
What are flexible benefits? Flexible benefit plans, or cafeteria plans, generally allow employees to choose between cash compensation, tax-exempt benefits, and taxable benefits without the choice itself resulting in the inclusion of the tax-exempt benefits in taxable income. Flex or cafeteria plans are authorized by the Internal Revenue Code (IRC Sec. 125) and are often referred to as Section 125 plans. These plans enable employers to provide employees with an additional benefit package at virtually no extra cost while reducing both the employer's and the employees' tax bills. Flex plans allow employers to upgrade and customize the array of benefits offered while keeping a handle on total benefit costs. Flex plans range from the most simple (that merely pay group insurance premiums with pretax dollars) to the most complex (that provide benefit credits and a choice of types and levels of benefits that may be chosen and paid for on either a pretax or a posttax basis).
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