Cafeteria Plan Design and Compliance (IRC § 125)

Summary

This practice note describes the requirements for cafeteria plans imposed by the internal revenue code and provides guidance on drafting and implementing this type of plan. A cafeteria plan, also known as a section 125 plan, is an employee welfare benefit program that employers can use to help employees pay for certain expenses such as health insurance, dental insurance, life insurance, unreimbursed medical expenses, and dependent care services with pre-tax dollars. These arrangements are governed by I.R.C. § 125, which allows the value of cafeteria plan qualified benefits to be excluded from the gross income of participating employees.