Download Full PDF
A Section 125 plan, or a cafeteria plan, allows employers to provide their employees with a choice between cash and certain qualified benefits without adverse tax consequences. To receive this tax advantage, the cafeteria plan must generally pass certain tests that are designed to ensure that the plan does not discriminate in favor of highly compensated employees.
If a cafeteria plan fails to pass nondiscrimination testing, highly compensated employees lose the tax benefits of participating in the plan (that is, they must include the benefits or compensation in their income). However, even if a cafeteria plan is discriminatory, non-highly compensated employees will not lose the tax benefits of participating in the plan.
Certain exceptions and safe harbors apply to the cafeteria plan nondiscrimination tests. Because these tests are so complex, employers should work with their benefit advisors or legal counsel when performing cafeteria plan nondiscrimination testing.
We Make it Easy
Let us take the stress out of managing employee benefits.
Schedule a Call
We’ll ask a few questions, review your current benefits and determine your goals.
Let us Do the Leg Work
Based on your needs and budget, we’ll research all available options and help you select the right plan for your employees and your business.
Bask in the Glory
When you’re confident due diligence has been done, and you’ve selected the right plan it’s time to sit back and relax - or get to everything else on your list.