What is a ( Section 125 ) Cafeteria plan ?

A Section 125 cafeteria plan is an employee benefit plan governed by the rules of Section 125 of the Internal Revenue Code. Cafeteria plan is a nickname for plans that give an employee a choice of selecting either cash or a qualifying, nontaxable benefit. Its purpose is to provide a method for allowing the employee to choose from a menu those benefits the employee desires to utilize. Generally, the benefits are fully or partially paid for by the employer. If the employee is required to pay for some or all of the benefits, they typically pay for them on a pre-tax basis.