Employers can choose to set up “cafeteria plans” under section 125 of the Internal Revenue Code for a variety of reasons. These cafeteria plans allow employees to set aside pre-tax income for certain employer-offered benefits. Benefits provided by plans covered under section 125 include adoption and dependent care assistance, health insurance, 401k and group term life insurance policies. They are called cafeteria plans because employees are given a list of benefits to choose from, similar to a cafeteria-style menu.
Some benefits not covered by section 125 include: education assistance, Archer Medical Savings Accounts, meals and transportation benefits.