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Flexible or Cafeteria Benefit Plan

Explain the components of a flexible or cafeteria benefit plan. Discuss the hurdles that must be overcome before such plans will achieve greater acceptance and use. Explain the impact that the Revenue Act of 1978 has on these plans. Include examples and whether you believe these plans are effective or ineffective and why.

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Flexible benefits or cafeteria plan allow employees to choose between flexible benefit credits, minimum levels of certain benefits, optional benefits, cash credit and tax deferral "without the choice itself resulting in the inclusion of the tax-exempt benefits in taxable income" (, 2013). They are often referred to as Section 125 plans and are authorized by the Internal Revenue Code. They reduce both the employer's and the employees' tax bills but do not cost the employer (contrary to most benefits). Typically, an employer allows each employee to spend a specified number of flexible credits (often expressed in dollars) and allow the employee to take cash in lieu of benefits. There are different levels of complexity from paying group insurance premium with pre-tax dollar to providing benefit credits and choice of types and levels that may be chosen and paid either on a pre or post ...

Solution Summary

This solution explains the different components of a flexible or cafeteria benefit plan;and the hurdles that must be overcome before these plans will have greater use. It also explains the impact of the Revenue Act of 1978 on these plans. It gives examples of the plans and input on their effectiveness. Includes APA formatted references.