What is the difference between cafeteria plan and employee flexible spending plan?

What is the difference between cafeteria plan and employee flexible spending plan?

A flexible spending arrangement (FSA) is a form of cafeteria plan benefit, funded by salary reduction, that reimburses employees for expenses incurred for certain qualified benefits. An FSA may be offered for dependent care assistance, adoption assistance, and medical care reimbursements.

Is an FSA a Section 125 plan?

Flexible Spending Accounts (FSAs), governed by Internal Revenue Code (IRC) Section 125, allow you to have pre-tax payroll deductions for certain medical and dependent care expenses. Section 125 also permits your insurance premiums to be taken on a pre-tax basis.

What is covered under a cafeteria plan?

Cafeteria Plans are an employer-sponsored benefit that lets employees pay certain qualified medical expenses – such as health insurance premiums for medical, dental, and vision coverage – on a pre-tax basis. They are sometimes called Section 125 Cafeteria Plans.

How much should you contribute to a cafeteria plan?

Employers must contribute toward the benefits of each plan-eligible employee in an amount equal to one of the following: A uniform percentage—not less than 2 percent—of the employee’s compensation for the plan year.

Why is it called a cafeteria plan?

A cafeteria plan gets its name from a cafeteria but has nothing to do with food. Just as individuals make food selections in a cafeteria, employees can choose the benefits of their choice before payroll taxes are calculated from a pool of options offered by their employers.

What are the four categories of cafeteria plans?

What is a cafeteria plan?

• Flex Account. One of the most common cafeteria plans is a flex account, or flexible spending account (FSA).
• POP Plan. Next is a Premium Only Plan (POP).
• Dependent Care Account. Finally, the last type of cafeteria plan is a Dependent Care flexible spending account.

What is a Section 125 flexible spending plan?

A Section 125 Flexible Benefit Plan allows you to select from a menu of benefits, choosing those benefits that meet your specific needs. Salary reduction means that you are able to use “pretax” dollars to pay for certain benefits that you may have previously paid for with “after-tax” dollars.

What is a Section 125 Premium Only Plan?

A Section 125 premium-only-plan (POP), is a cafeteria plan which allows employees to pay their health insurance premiums with tax-free dollars. Using a Section 125 POP to pay for insurance premiums benefits both employers and their employees.

What is the disadvantage of cafeteria style plans?

Employees who exceed their allocated spending amount pay a partial premium to their employer. So if Emma spends $1,000 over her allocated contribution, she pays a portion of that amount herself. The disadvantage of a cafeteria plan is it usually takes more time to administer and is typically more complex.

What are some pros and cons of cafeteria benefits plans?

Pros and Cons of a Cafeteria Plan

• Pay Less Tax. Employers do not pay FICA or FUTA taxes on salary reductions amounts.
• Address Employee Needs.
• Cost Control.
• Competitive Benefit Program.
• Improve Employee-Employer Relationship.
• Respond to Work-Force Diversity.
• Better Understanding of Benefits.

What is another name for a cafeteria plan?

a fringe-benefit plan under which employees may choose from among various benefits those that best fit their needs, up to a specified dollar value. Also called cafeteria benefit plan .

Who is not eligible for Section 125 plan?

The Section 125 rules specifically prohibit the following individuals from participating: • Self-employed individuals; • Partners within a partnership; and • More than 2 percent shareholders in a subchapter S corporation (S corporation).