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Cafeteria Plans

 


Purchasing Power Inc. has many years of experience administering Section 125 Plans. Also known as "cafeteria" or "flex" plans, these allow employees the flexibility to pick the benefits they want, much as you would select individual items for a meal at a cafeteria. To understand the popularity of flex plans and the reasons for their growth, they must be viewed from two perspectives: the employer's and the employee's.

The employer's perspective - Why adopt a flex plan?
To manage benefit costs. With a flexible compensation or flexible benefits program, an employer can manage the cost of benefits to the company in the same way that it manages its payroll costs. In effect, the employer adopts a "defined contribution" approach to benefits,
deciding at the start of each plan year how much it will spend on benefits that year. Because the employees make their own contributions they tend to accept any changes or cost-containment measures more readily than they would if the employer cut benefits unilaterally.

Pay less in taxes. Pre-tax dollars directed into flexible benefit options are not subject to Social Security (FICA) or federal unemployment (FUTA) taxes. Consequently, the employer's tax bill is reduced, although the cost of benefits may increase. When filing your Workers Compensation, the adjusted payroll total is used in determining your payments.

Offer new benefits at little additional cost to the employer . Flex plans allow an employer to offer new benefits, such as flexible spending accounts, which provide tax advantages to employees at little or no cost to the employer.

Maintain a competitive benefit program. Today's employees view flexible benefits as being more valuable than conventional benefits. Many employers - especially those in highly competitive industries - have found that flex plans can help them gain an advantage in attracting and retaining valuable employees.

For a quote or more information, contact us at:

(419) 872-0925

flexsupport@purchasingpowerco.com

 

 

The employee's perspective -
Employees benefit from a flex plan because they have the opportunity to:

Choose which benefits meet their needs and adjust those choices annually as their needs change;
Avoid federal income tax, Social Security tax and most state and local taxes on certain qualified expenses;
Coordinate coverage under two benefit plans in dual-income family situations, and
Learn more about the value of their benefits.

Types of Flex Plans
In flexible benefits and flexible compensation programs, the extent of the flexibility depends on the type of program that is implemented. There are three basic variations on the flex theme and many employers combine elements of all three approaches in their plan design. You can utilize:

Premium conversion plans - salary reduction programs that convert employee contributions to health care premiums from a post-tax basis to a pre-tax basis;
Flexible spending accounts - programs that enable employees to use salary reduction to reimburse certain expenses on a pre-tax basis through individual accounts, and
Full flex plans - programs that give employees a menu of pre-tax benefits from which to choose.
 

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