Why should my company offer a cafeteria plan?

Cafeteria plans continue to be popular due to the distinct advantages they offer for both employers and employees.

Benefits to employers. Cafeteria plans benefit employers by:

• reducing payroll taxes (i.e., FICA and FUTA taxes);

• reducing overall benefits costs by allowing employees to select desired benefits and thus eliminating overlapping or unnecessary benefits;

• shifting benefits costs to employees through salary reduction arrangements;

• attracting and retaining employees;

• increasing employee loyalty and gaining other advantages in the area of employee/employer relations;

• reducing benefit waste-money spent by employers on benefits that are not highly valued and/or not used by employees;

• steering employees towards certain less costly plans; and

• easing transitions caused by employer mergers or acquisitions.

Benefits to employees. Cafeteria plans are also attractive to employees for a number of reasons, including:

• reducing payroll taxes on employee salary reduction payments; and

• giving employees the ability to customize their plans to provide most-needed benefits.