Question

Why are cafeteria plans helpful in the design of an employee beneft plan that provides nontaxableringe benefits? O A Under a cafeteria pian employees may select which benefits they wish to receive and select the terms that they feel are most beneficial For example, single employees are often not interested in te insurance coverage OB. Under a cafeteria plan employees may select which benefits they wish to receive throughout the year. For example they are not restricted to yearly elections, but can select the benefits on an aseeded Under a cafeteria plan amployees can select to receive cash in lieu of available benefits equaling up to thirds of the amount they would receive they selected to take the benefits For sa employees who do not require the nontaxable fringe benefits and elect to receive cash, do not have to include this amount into gross income. OD Under a cafeteria plan employees are afforded greater benefits through their employers because the employer can limit these benefits to single employees only or employees who are the only w household. For example, a household that has spouses where both work, the employer does not need to offer employee benefit plans to them le a ite

Answer 1

A Cafeteria Plan is a reimbursement plan governed by IRS Section 125 which allows employees to contribute a certain amount of their gross income to a designated account or accounts before taxes are calculated.

To qualify, a cafeteria plan must allow employees to choose from two or more benefits consisting of cash or qualified benefit plans. The Internal Revenue Code explicitly excludes deferred compensation plans from qualifying as a cafeteria plan subject to a gross income exemption. Employees of employers with cafeteria plans may obtain such benefits as health insurance, group-term life insurance, voluntary "supplemental" insurance (dental, vision, cancer, hospital confinement, accident, etc.), and flexible spending accounts through the plan. Though some cafeteria plans offer an explicit choice of cash or benefits, most today are operated through a "salary redirection agreement", which is a payroll deduction in all but name. Deductions under such agreements are often called pre-tax deductions. Salary redirection contributions are not actually or constructively received by the participant.

Under Cafeteria plan, employees are afforded greater benefits through their employers because the employer can limit these benefits to single employees onlyor the employees who are the only worker in the household