Among full-time employees in
private firms employing 100 or more workers in 1989, 9
percent were eligible to participate in cafeteria plans,
and 23 percent were eligible to participate in flexible
spending accounts (FSAs). Generally, the percentage of
employers sponsoring flexible spending plans increases
with employers' size.
In 1989, 93 percent of
employer-sponsored plans that offered employees some
choice among benefits were at least partially funded by
employees, although 84 percent of these plans also
received an employer contribution.
Employees are not required to pay
federal income or Social Security taxes on individual
salary reduction contributions to qualified flexible
benefits plans. Similarly, employers do not pay
unemployment or Social Security taxes on these
contributions.
Among employees eligible for FSAs
in 1989, less than 20 percent contributed to a health
care FSA, and only 3 percent contributed to a dependent
care FSA.
Cafeteria plans differ from
traditional benefits plans by providing an alternative
delivery system that focuses on limiting employer
expenditures and promoting individual choice while
maximizing tax effectiveness.
Regulations released in 1989
require employers to make the maximum reimbursement under
an employee's health care FSA available at all times
throughout the plan year even if the employee has not
contributed enough to cover the expenses at the time of
the claim.
