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    8 Replies Latest reply on Mar 21, 2008 10:04 AM by Excellent

    Cafeteria Plans

    Excellent Adventurer
      Does anyone know anything about cafeteria plans? I'd like to find out what the rules are (as far as getting on one), how they work, and what are the pros and cons.
        • Re: Cafeteria Plans
          LUCKIEST Guide
          Cafeteria Plans. Tell us more. You to find out what the rules are (as far as getting on one),
          how they work, and what are the pros and cons.

          What is a cafeteria plan? As its name suggests, a cafeteria plan allows
          an employee to choose where his or her benefit dollars will be spent. The plan can provide
          a number of selections, including medical, accident, disability, vision, dental and group
          term life insurance. It can reimburse actual medical expenses. It can pay children’s
          day care expenses. And, it does these things with pre-tax dollars. One thing to remember
          is that these benefits must be funded with tomorrow’s earnings, not yesterday’s.
          By that I mean, each person must estimate the costs that he or she will incur during the
          plan’s upcoming year and request to have
          the estimated amount redirected from wages
          into the plan.

          • Re: Cafeteria Plans
            Lighthouse24 Ranger
            A variety of companies can set up a Section 125 Cafeteria Plan, for example payroll services, insurance companies, CPAs, and many other third-party administrators.

            As far as the pros and cons: The main benefits to the employer and the employee are a substantial tax savings, and the fact that employees generally like the flexibility of choosing to pay for qualifying expenses on a pre-tax basis. The main disadvantage to the employer is the time and cost to administer the plan, and the main disadvantages to employees are that elected deductions are not generally revocable, and funds that are unused at the end of the year are not refundable.

            Hope this helps. Best wishes.
              • Re: Cafeteria Plans
                dublincpa Scout
                Once again, I agree with everythng Lighthouse24 writes. However, there is a lot of margin for error on the employee medical FSA contributions. As a result of the substantial FICA, Federal and State tax savings on the EE contributions, most people would still be ahead if they over contributed by as much as 25% of their medical expenses. I think that the cost of undercontribution is greater than the risk of overcontribution.
                  • Re: Cafeteria Plans
                    Lighthouse24 Ranger

                    Good point, dublincpa -- no argument here. I saw this as the employee "pro" (tax advantage) of having the plan. I didn't consider under-contributing to be an employee "con" (disadvantage) to having a plan versus not having a plan because I couldn't think of any cases where the employee would be worse off under-contributing to a plan than he/she would have been if there was no plan at all.

                    Fortunately, there are better worksheets available now than when these plans first came along to allow a reasonable over-contribution that may "leave money on the table" in one sense, but save the employee much more than that overall -- which is what I think you are saying, and I'd definitely agree.
                  • Re: Cafeteria Plans
                    Excellent Adventurer
                    Our company has a cafeteria (Section 125) plan administered by a payroll company. There are only 5 employees on the plan. Our employer pays half the insurance premium and the employee pays the other half. Is the reason why we have a cafeteria plan because the employee gets to use pre-tax dollars to allot this expense? If so, I've never had to complete any form forecasting the cost; shouldn't I be doing that?
                      • Re: Cafeteria Plans
                        Lighthouse24 Ranger
                        Most plan administrators (or the employers themselves) provide a worksheet to help you estimate (forecast) your medical expenses and dependent care expenses (and whatever else might be covered by the plan). It's not usually an official "form" per se, but just a tool or guide for determining how much you want to authorize for pre-tax redirection (contribution). It may be something you can download from the payroll company's site, in your case. Did I understand/answer your question?
                    • Re: Cafeteria Plans
                      designer Tracker
                      Gosh, you learn something new everyday! From the subject heading, I thought this person was looking into a cafeteria business and wanted to know what is required as it relates to getting approval from the Board of Health regarding cleanliness and equipment and what would the dietary requirements be. LOL!