WHAT IS A “CAFETERIA” PLAN?

A cafeteria plan, authorized by Section 125 of the Internal Revenue Code, is a way of providing employees with valuable benefits while saving both the employer and employees significant amounts on taxes.

Employees are given an opportunity to “redirect” a portion of their salary to pay for health related expenses selected from a “menu” of non-taxable benefits  (hence the term “cafeteria”).

          ·  Medical Reimbursement       ·   Dependent Care

          ·  Health Insurance                  ·   GTL Insurance

          ·  Dental Insurance                  ·   Disability Insurance

          ·  Cancer Insurance                 ·   Vision Insurance

Advantages to you as the Employer

• The Plan may provide employers with cost containment strategies for dealing with the ever-increasing expense of providing fringe benefits.

• Many employers find the Plan promotes loyalty, motivation and heightened morale among employees because each employee’s disposable income will increase.

• Employers can participate in the plan in the same manner as the employees, unless the employer is a partner in a partnership or a sole proprietor.

• Employer tax savings are generally sufficient to cover most or all of the plan implementation and annual administration costs.

Requirements for installing a Plan

• Formally adopt the Plan and execute a written Plan Document.

• Provide a Summary Plan Description to all employees.  This provides details of benefits, eligibility and election requirements.

• Keep records on each amount of money from salary reduction and reimbursement as it is paid.

• File annual IRS Form 5500.

AIM administrators are instrumental in fulfilling all plan requirements.

For complete information, please see our Employers Guide by clicking the link below.

Employers Guide (PDF).

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