Cafeteria Plans: What’s on your benefit menu?
An attractive and comprehensive benefit menu is an invaluable aid to your company. Not only does it increase employee satisfaction and improve productivity, but it can also decrease hiring and training costs by lowering turnover and building company loyalty.
A Section 125 Cafeteria Plan is an employee benefit plan designed by the IRS and all contributions to the plan are excluded from the employee’s gross income. This works out to be a benefit for both employee and employer; the employee’s pre-tax contributions are not subject to federal, state or social security taxes and the employer saves on their portion of FICA, FUTA and Worker’s Compensation insurance, increasing the spendable income of both parties.
Most companies offering a pre-tax group health insurance benefit are probably running it under a cafeteria plan. However, they may not be aware of the other benefits available to them and their employees.
- Flexible Spending Accounts –The most popular cafeteria plan offering is the Medical FSA. This plan allows for pre-tax deductions that can be used to pay for out of pocket medical expenses incurred by the employee and their family members. During open enrollment, the employee makes an election based on company and/or IRS limits. The funds are deducted from the employee’s pay over the course of the year. These funds can be used to pay medical, dental or vision expenses such as deductibles, co-pays and even some over-the-counter items that are not covered by other insurance plans.
- Dependent Daycare Accounts – This plan is similar to the Medical FSA, but pays for expenses incurred for child care. It was established to help parents that work outside the home. Eligible expenses include the cost to care for parents, a disabled spouse or dependent not capable of caring for themselves. Most employees will realize a greater tax savings using the dependent care account than they can get by taking the tax credit on their personal tax filing at the end of the year.
- Health Savings Accounts – This is the newest offering under the IRS Section 125 Cafeteria Plan. Plan limits are set by the IRS and require the employee to be enrolled in a high-deductible health insurance plan. The plan is used in much the same way as a Medical FSA with the biggest difference being that the employee actually “owns” the account and the funds can carry over from year to year and can be taken with them if they leave the job.
- Transit/Parking Accounts – These plans were designed to help employees with public transportation or parking expenses related to their employment. The IRS also acknowledges that the cost of these services are subject to change several times over the course of a year and has amended these plans to be monthly elections rather than an annual election.
The Section 125 Cafeteria Plans are a great choice for both employee and employer, offering something for everyone. Pairing these plans with a debit card to access the funds creates an irresistible dish in your benefit menu.
For more information on adding a Cafeteria Plan to your benefit menu, please visit myCafeteriaPlan.com.