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- According to the Internal Revenue Service, a cafeteria plan consists of a "separate written plan maintained by an employer for employees that meets the specific requirements of and regulations of section 125 of the IRS Code." Under this plan, certain benefits are available to participants on a pre-tax basis. By law, participants must be able to choose between a minimum of one qualified benefit and one taxable benefit. Cafeteria plans are also referred to as flexible benefit plans.
- Qualified benefits under a cafeteria plan include health and accident coverage, but exclude long-term care insurance. Other allowable benefits include dental insurance, adoption assistance, limited coverage by group life insurance, disability insurance, dependent care, and health savings accounts. The health savings accounts benefits permit distributions for long-term care services. Such plans cannot advance employees reimbursements for medical expenses. Only those medicals expenses occuring during the year with documented substantiaton qualify for reimbursement.
- Group life insurance benefits exceeding $50,000 are taxable under the rules for cafeteria health plans. Ineligible benefits include those for education and transportation, employee discounts, scholarships and fellowships. Retirement benefits other than 401(k) plans are ineligible, but due to the complexity of the IRS 401(k) regulations, relatively few employers include them in cafeteria plans.
- According to the National Conference of State Legislators, 13 states offer cafeteria plans as part of healthcare insurance reform as of November 2009. In Connecticut, Rhode Island, Massachusetts, Minnesota and Missouri, some employers must offer cafeteria plans by law, while in the remaining eight states, use of cafeteria plans is voluntary. Mandatory use of cafeteria plans creates health insurance portability for enrolled employees.
Definition
Qualified Benefits
Ineligible Benefits
State Plan Availability
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