A Section 125 plan, also known as a cafeteria plan, is a fringe benefit plan that utilizes pre-tax contributions to pay for employee benefits. Employee pre-tax contributions are converted to pay insurance premiums and certain medical and dependant care expenses.
A Premium Conversion Plan converts employee pre-tax contributions to pay for insurance premiums. The premium conversion plan may include the following insurance premiums: Health and Dental Insurance, Accident and Disability Insurance, Group Term Life Insurance.
A Flexible Spending Account converts employee pre-tax contributions to reimburse employees for qualified medical and dependant care expenses that are not covered by employer sponsored insurance plans.
Employee contributions to a cafeteria plan reduce the employee's taxable income.