Flexible benefit, or cafeteria, plans generally allow employees to choose between cash compensation and tax-exempt benefits. Flex or cafeteria plans are authorized by Internal Revenue Code (IRC) Sec. 125 and are often referred to as Section 125 plans. Under such a plan, it is possible for 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 post-tax basis).
New Cafeteria Plan Regulations Proposed
The Treasury Department and the IRS have issued new proposed regulations for employee benefit plans under Section 125 of the Internal Revenue Code. The plans, called "cafeteria plans," allow employees to make a choice between receiving taxable cash compensation or tax-free employee benefits, such as health care, dependent care, and other fringe benefits.
