A cafeteria plan is a flexible benefit plan that allows employees to choose their benefits within certain prescribed limits. Among the choices that might be available in a typical plan are:

• Medical plan options that offer a choice between a traditional indemnity plan and an HMO.

• Group term life insurance for the employee and their dependents.

• Optional 401(k) retirement plan contributions.

• Spending accounts for unreimbursed medical expenses (e.g. deductibles and co-payment amounts) and dependent care (e.g., day care) expenses.

The underlying rationale of a cafeteria plan is simply the recognition that "one size doesn't fit all." Providing an individualized benefit plan that allows employees to tailor their benefits to their particular family needs may be one of the best ways to attract and retain valuable employees.