Cafeteria Plans
II. Types of Flexible Benefits or Cafeteria Plans
A. The following sets forth the major types of Flexible Benefits or Cafeteria Plans being used by employers today:
1. Pre-Tax Conversion Plan - a plan where the employees are covered by a contributory medical plan. Instead of the employee contributions being after- tax, the employee contributions are converted to pre-tax by complying with the rules of Internal Revenue Code Section 125 on cafeteria plans.
2. Multiple Option Pre-Tax Conversion Plan - a program where the employee can select an indemnity plan and one or more HMOs or PPOs with differing amounts of employee contributions. If the program complies with Code Section 125, the employee contributions to the selected plan will be pre-tax rather than after-tax. If the participant chooses not to participate in any medical plan, the employee does not receive any payments from the employer but does get to keep his own money.
3. Medical Plan Plus Flexible Spending Accounts - In addition to being covered by a medical plan, the employer allows participants to establish a medical flexible spending account. In most cases, the contributions to a flexible spending account are exclusively from the employee on a pre-tax salary reduction basis. The amounts credited to a flexible spending account are then used to pay amounts which are not covered by the medical plan such as deductibles, co-insurance amounts or cosmetic surgery. In addition, the employer can provide an option to have salary reduction amounts contributed to a Dependent Care flexible spending account.
4. Employer Credit Cafeteria Plans - a program where the employer gives the employee a specified number of credits which the employee can "spend" on different employee benefit plans or contribute to a flexible spending account. Usually, there are sufficient employer credits for an employee to choose a low-cost medical plan and a base amount of life insurance coverage without requiring the employee to contribute his own money. To the extent that the employee chooses a more costly benefit package, he will have to make contributions out of his own money, usually through a pre-tax conversion feature. These plans can be divided into two types:
a. those which allow an employee to elect not to be covered by any medical plan; and
b. those which do not allow an employee "to go naked."
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