Section 125 Plans (cafeteria Plans)

Definition of "Section 125 plans (cafeteria plans)"

Shon McGuire real estate agent

Written by

Shon McGuireelite badge icon

Adams Cameron & Co. Realtors

Additions made by Congress in 1978 to the Internal Revenue Code that provide an employee benefit plan under which the employee makes an irrevocable decision to forego a portion of future income in exchange for receiving future benefits not subject to income tax at reception date. The employer deducts the cost of the employee's future benefits from present income as a business expense. These plans usually provide three options:

  1. Premium Conversion Employee contributes a proportionate share of the family health care costs with pre-tax dollars.
  2. Medical Reimbursement Account Employee is able to use a SALARY REDUCTION PLAN to pay with dollars on a pre-tax basis for medical expenses not covered by insurance; a separate medical reimbursement account is established for each employee.
  3. Dependent Care Reimbursement Account Employee is able to use a salary reduction plan to pay with dollars on a pre-tax basis for dependent care expenses.
An additional option sometimes provided for employees only (family members are excluded) is TERM LIFE INSURANCE for an amount up to $50,000 and DISABILITY INCOME INSURANCE. All employees must have equal access to the plans whether they are highly compensated or non highly compensated employees. Any monies left in the employee's account not used by the end of the year revert back to the company; this is known as the Use It or Lose It rule. As the employee incurs expenses, that employee applies for reimbursement through a form attached to the bill. When the administrator of the plan issues a check to the employee for the expenses, a statement is also provided that shows the amount remaining in the employee's account.

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Insurance Terms

Bond that provides additional security for a loan. ...

Accrediting body for the ACAS (Associate of the Casualty Actuarial Society) designation and the FCAS (Fellow of the Casualty Actuarial Society) designation. To earn these designations, ...

Money paid through state and federal programs to workers who are temporarily unemployed. The program, which was created by the social security act of 1935, is managed by the individual ...

Coverage for legal liability resulting from damage or destruction of the bailor's property while under the bailee's temporary care, custody, and control. Includes property on or in transit ...

Theory developed in 1931 by H. W. Heinrich; states that an accident is only one of a series of factors, each of which depends on a previous factor in the following manner: accident causes ...

Rights of employees who leave an employer with a qualified plan to withdraw their accumulated benefits. With a contributory plan, employees have immediate rights to their own contributions, ...

Insurance established under the federal Railroad Retirement Act for railroad employees, covering death, retirement, disability, and unemployment. Benefits are adjusted for cost of living ...

Underwriting method used in classifying applicants for life insurance according to certain demographic factors and assigning weights to these factors. Factors include physical condition, ...

Individuals under common management whose goal is to sell and service insurance. Office may be managed by a general agent or branch manager. ...

Popular Insurance Questions