A Section 125 Cafeteria or Flexible Benefits Plan is a program in which you offer to your employees to enhance your benefit program, and create tax savings for you and your employees. You have a variety of options and choice in-group benefits, between group and non-group benefits, and, in the case of a cafeteria plan, between cash and benefits. A flexible benefits plan allows your employees to create a benefits program that meets their personal needs (within the limits of available flexible benefits funds).

Cafeteria plans or flexible benefit plans are also referred to as flexible compensation plans, supermarket compensation, choice plans, and even smorgasbord compensation. Under Code Section 125, a flexible benefits program is identified, legally,  as a cafeteria plan.

If your employee benefits plan, offers certain choices, and is structured in accordance with Section 125 of the Internal Revenue Code, it is referred to as a cafeteria plan, and it must meet the following basic legal requirements of a cafeteria plan in order to deliver the tax advantages allowed by Code Section 125:

1.

Your plan must be in writing.(Plan document)

2.

All participants must be your employees;

3.

Your employees must be provided with choices between two or more benefits where at least one of the choices includes cash or a cash equivalent, and other choices that are nontaxable qualified benefits as defined by the Code; and

4.

The plan must not discriminate in favor of your highly compensated participants.

If your employee benefits plan does not meet the above requirements, it can still be known as a flexible benefits plan if it offers choices between two or more qualified benefits.(Such as medical expense or dependent care accounts)