The IRS section 125 has many requirements for employers to follow in order to receive the tax benefits of a cafeteria plan.

The IRS  requires for a cash option to be offered to employees, and the most common legal cash option is the salary reduction which the employer and employee must have a formal contract.

There are many benefits covered under section 125 such  as dependent care, adoption assistance, and medical care reimbursement.

However, there are specific benefits not covered under section 125, such as fringe benefits, qualified scholarships, contributions to medical savings accounts, qualified long term life insurance, and tuition assistance.

Employers and employees can benefit from the tax shelter that the cafeteria plans offer.

Many Cafeteria Plan Administration and Management companies indicate that the employers tax benefit can be an average of 8% per participant.

Employees benefits from the salary reduction and the lower taxable income because employees are no longer being taxed on some of their benefits.   The tax savings depends upon the contributions and the salary of the participant, but an employee could 25- 40 % on taxes.

There are many tools available to employers that are interested in offering a cafeteria plan to his employees.

Employers can outsource the cafeteria plan management

Or employers can administer the plan in house with the support of plan management software and a knowledgeable human resource department staff.

Premium Only Plans (POP)

Flexible Spending Accounts (FSA)

Health Reimbursement Accounts (HRA)

Full Cafeteria Plans - Offer every benefit of each plan.

The cost to administer depend upon the number of participants, what tools an employers uses, and what types of plans are going to be offered.

Plans managed in-house can be managed with software and knowledgeable staff.  Although the cost of the software is a hard number ( Initial set- up approx. $1351, administration and technical support approx. $31 per month, and yearly updates approx. $200), the education of the human resource or benefits department to maintain consistent and accurate knowledge it to be determined.

Plans outsourced can  relatively inexpensive, but vary depending upon the plan select and the number of employees.  Most companies that offer cafeteria plan management offer access to benefit and account information to employers and employees via the web.   Rates of the plans cannot be found online you need to contact the management companies.