Cafeteria plans, a.k.a. Section 125 plans, are employer sponsored benefit packages that allow employees to choose from a menu of options and allocate their allotted share to the items they pick. With this type of plan the employer agrees to an allowance per employee to contribute to the package. The employee may either take the allowance as additional cash income (fully taxed) or allocate the amount among the various benefit options.
Internal Revenue Service compliant benefit options whereby an entire menu of selections for an employee are available are called cafeteria plans. It allows employees to select those benefits the best suit their individual needs.