What is Cafeteria Plan ?
‘Cafeteria Plan’ is a term that refers to the customizable benefits plans that certain companies in the US offer their employees. It is also known as the ‘Cafeteria System’ in some organizations.
The term was coined since employees can choose the benefits similar to a consumer customizing the food in a cafeteria. However, for a benefit plan to be qualified as a cafeteria plan, the employee should be able to choose from two or more plans.
The cafeteria system is governed by Section 125 of the Internal Revenue Code of the USA. Implementing a cafeteria plan is beneficial for both the employer and the employee as it helps them save taxes due to the nature of the plan.