§125 CAFETERIA PLANS

Section §125 of the Internal Revenue Code allows an employee to contribute a certain amount of pre-tax dollars to a plan to avoid income taxes on the amount allocated to these qualified benefit plans.  These plans are outgrowths of Internal Revenue Code (Section 125) provisions specific to flexible benefit plans (Cafeteria). Flexible benefit plans include Premium Only Plans (POP) and Flexible Spending Accounts (FSA).  It allows employees to actually receive the benefit of using pre-tax dollars to pay for qualified expenses.

There is one clear reason why a flexible benefit plan makes sense for the employer and employee, tax savings.  Today, many employees are assuming a larger share of the cost for their benefit plans; incurring more out-of-pocket expenses in the form of higher deductibles, copayments and health care expenses not covered under the benefit plans. In addition; because of the prevalence of dual wage earning families and single parents, the cost of dependent care becomes a significant issue for both employees and their employers.

Employers can achieve higher employee morale and cost savings through flexible spending accounts.  A flexible spending account reduces social security taxes for the amount of employee contributions to the plan and lower salary based insurance premiums, such as worker's compensation and state disability insurance.  They also increase an employer's ability to provide a benefit for employees without increasing costs (e.g., orthodontia, vision care, prescription, etc.).

FSA's do not present employers with complex administration issues. BAI has proven ways to simplify FSA design, implementation, administration and communication for employers.