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Association and staff alike can benefit from a Section 125 plan
"Cafeteria plans" are fringe-benefit plans that allow employees to choose the benefits they want from their employer, including cash in lieu of other benefits. Employees may choose among a variety of taxable benefits, such as cash, or nontaxable benefits, such as health coverage. Cafeteria plans are authorized by Section 125 of the Internal Revenue Code.
While nothing in the code is simple, of course, the basic requirements of cafeteria plans are that they be in writing, give employees choices among cash and other benefits, and not discriminate in favor of highly paid employees. A plan must offer at least one taxable benefit and at least one nontaxable benefit.
Advantages. The advantages that are afforded by a Section 125 plan are that
* both employer and employee receive certain tax advantages (which may not be as important for nonprofit organizations as for for-profit companies) and
* employees have the freedom to choose cash instead of unwanted or unneeded benefits.
There may be an additional advantage for the association. By offering a cafeteria plan, it may be easier to shift more of the cost of employee benefits to the employees.
By providing benefits under a cafeteria plan, an association can provide...