Section 125 Plans

What Is a Section 125 Plan?

A Section 125 plan—also called a "cafeteria plan"—is a benefit program authorized by the IRS that allows employees to pay for certain qualified expenses using pre-tax dollars. This means the money comes out of their paycheck before federal income tax, Social Security tax, and Medicare tax are calculated.

The result? Employees take home more money, and employers pay less in payroll taxes. It's one of the few win-win scenarios in employee benefits.

How Section 125 Plans Save Money

Here's a simple example of how pre-tax benefits work:

Types of Section 125 Plans

• Premium Only Plans (POP) — The most common type. Employees pay health insurance premiums with pre-tax dollars.
• Flexible Spending Accounts (FSA) — Employees set aside pre-tax money for medical expenses or dependent care.
• Full Cafeteria Plans — Employees choose from a menu of benefits including health insurance, life insurance, disability, and more.

Section 125 Plan Requirements

To comply with IRS regulations, Section 125 plans must:

• Be established through a written plan document
• Offer at least one taxable benefit (usually cash/salary) and one qualified benefit
• Only cover eligible employees
• Follow non-discrimination rules
• Restrict mid-year changes to qualifying life events

The Optiv Health Difference

Optiv Health provides a turnkey Section 125 supplemental health plan that goes beyond basic premium conversion. Our plan includes:

• 1,000+ free generic prescriptions at $0 copay
• Unlimited 24/7 telehealth visits
• Pre-tax premium deductions
• Full compliance with IRS Section 125 requirements
• Simple enrollment and administration

The average employer saves $600-900 per employee per year while giving employees better coverage than they had before.