What does a cafeteria plan allow employees to do regarding their benefits?

A cafeteria plan allows employees to choose from a variety of benefits offered by their employer, giving them the flexibility to select the benefits that best meet their individual needs. The key feature of these plans is that they allow employees to make contributions to their chosen benefits on a non-taxable basis. This means that the money deducted from their pay for benefits is not subject to income tax, offering a financial advantage to employees who participate.

This tax-advantaged structure is designed to give employees more control over how they allocate their compensation towards benefits like health insurance, retirement plans, and other perks. It enhances employee satisfaction and engagement, as employees can tailor their benefits packages to fit their unique lifestyles and circumstances.

The other options do not accurately describe the nature of a cafeteria plan. For instance, the concept of receiving unlimited benefits is misleading, as employees can only select from the options provided by the employer. Similarly, being restricted to choosing only company-mandated benefits is contrary to the essence of a cafeteria plan, which inherently allows for choice. Lastly, while a cafeteria plan may help reduce overall benefit costs through employee selections that align with their needs, it does not eliminate costs entirely; benefits will still incur expenses that must be managed.