Cafeteria Plan

Published: | Updated: March 4, 2018

Definition - What does Cafeteria Plan mean?

A cafeteria plan is a type of employee benefit in which an employer allows a certain percentage of the employee's pre-tax earnings to be put into a special account. This account can be used by the employee to pay for things like life insurance premiums o medical expenses not covered by insurance.

Insuranceopedia explains Cafeteria Plan

Cafeteria plans give employees some flexibility when selecting how they want to use their benefit. Unlike more restrictive group benefit plans, it allows a certain amount of customization.

Another advantage of cafeteria plans is that they reduce the business' tax-reportable income amounts per employee, which can lower the employer's overall tax burden.

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