Many employers offer a “one size fits all" “take-it-or-leave-it" benefit plan that does not suit all employees. Section 125 cafeteria plans removes both these conditions and allows employees to design their own benefit packages based on their needs
Section 125 cafeteria plans mandate that the employer provide at least one taxable benefit such as cash bonus, annual leave reimbursement, sick leave, or paid time off, or severance pay, and one or more benefit that qualifies as a Section 125 eligible benefit for tax exemption. The optional benefits that qualify for tax exemption can include accident and health insurance, group life insurance up to $50,000, business travel accident insurance, dental insurance, vision care, group-term life insurance, childcare, dependent care flexible spending accounts, disability insurance, 401(k) contributions, and more.
Employees have the option to select the benefits appropriate to their needs from a “menu" just as the employee selects food in a cafeteria, with the total benefit dollars available in the employee's account and the range offered by the employer acting as the restraining factors.
Such a flexible benefit plan allows companies to accommodate the increasing needs of diversity of the workforce. For instance, the benefit needs of young families may differ greatly from those of a single person. A young couple might for instance opt for dependent care assistant whereas, an elderly couple may opt for adoption assistance.