Section 125 Plans

These plans are made possible by section 125 of the IRS code, and offer employers ways to save on their group benefit plans as well as offer employees a way to save taxes on money spent on out-of-pocket dependent care and medical expenses.

There are three different options offered under Section 125 Plans:

-   Premium Only Plans (POP)
-   Flexible Spending Accounts
-   Flexible Benefit "Cafeteria" Plan


Premium Only Plans (POP):  This alternative allows employees to pay for benefits on a pretax basis, thus lowering their taxable income and tax liability

Flexible Spending Accounts:  Spending accounts are a means for employees to set aside pre-tax dollars for health care and dependent care expenses that are not covered by health insurance plans (deductibles, co-payments, etc.). In most cases, for the employer, the savings in payroll and FICA taxes more than covers the expense of offering this benefit plan.

Flexible Benefits "Cafeteria" Plan:  The "Cafeteria" plan gives employers the opportunity to gain control over their benefit expenditures through a "cafeteria" or menu-like plan. A Cafeteria Plan is the most complex alternative because it changes the way employees receive benefits. Instead of providing a determined set of benefits (such as a medical/dental plan and $50,000 of life insurance), each employee is given an amount of "benefit dollars" roughly equal to the employer's expenditure for that person's benefits. The employee then chooses from a menu of benefits and determines those that best fit his or her needs. Of course, the employer determines the available options. Although a Cafeteria Plan can be more expensive to implement, employers ultimately save money through the more efficient plan design, as well as the tax-effective and cost effective vehicles of delivery.

Click here to see Example of Employer Savings
Click here to see Example of Employee Savings