Which type of plan allows employees to choose from among various tax-sheltered and non-tax-sheltered benefits?

The correct answer is the cafeteria plan, which is designed to give employees a level of choice regarding their benefits and allows them to select from a menu of various tax-sheltered and non-tax-sheltered options. This flexibility is beneficial as it enables employees to tailor their benefits package to better fit their personal needs and circumstances. For instance, they might choose extra health coverage, additional life insurance, or other benefits depending on their individual or family situation.

Cafeteria plans recognize that employees have different priorities. By allowing them to allocate the benefits they value most and weigh them against the tax implications, cafeteria plans foster a more personalized approach to employee welfare.

In contrast, employer-sponsored qualified retirement plans are typically more rigid, focusing solely on retirement savings without the variety of other benefits offered under cafeteria plans. Health savings accounts are specifically designated for medical expenses and do not provide varied options outside of health-related benefits. Flexible spending accounts, while they offer some level of choice in how employees spend their pre-tax dollars, are primarily limited to health-related expenses and do not include broader benefit options that are part of cafeteria plans.