What is a cafeteria (Section 125) plan?
A cafeteria plan, also known as a Section 125 plan, is an employee benefit plan governed by the provisions of Section 125 of the Internal Revenue Code. Its purpose is to provide a method for allowing the employee to choose from among a menu of choices (hence the name) those benefits the employee desires to utilize. The benefits may be fully or partially paid for by the employer. If the employee is required to pay for some or all of the benefits, he or she typically pays for them on a pre-tax basis. Employee paid pretax accounts are sometimes called “Flexible Spending Accounts” or “FSAs”.
