Section 125 Benefits Plan for Employers — What's Actually In It

A complete Section 125 benefits plan includes more than most employers realize. The IRS code authorizes a wide menu of pre-tax benefits an employer can offer through a single cafeteria-plan structure — and adding the Preventive Care wellness variant on top creates the structural employee raise + employer FICA savings most employers haven't seen before.

Here's the actual menu and how the pieces fit together for an employer building (or upgrading) their Section 125 plan.

The components your plan administrator can include in a single cafeteria-plan document: (1) pre-tax group health insurance premiums, (2) medical Flexible Spending Accounts (FSAs), (3) dependent care assistance accounts, (4) HSA contributions routed through payroll, (5) group term life insurance (up to $50K), (6) disability insurance (in some structures), and (7) the Preventive Care wellness program. The first six are standard. The seventh — Preventive Care — is the variant that adds the structural $72/paycheck raise + the $681.60/employee/year net employer savings on top of whatever pre-tax health insurance setup you already run.

How the math works (in 90 seconds)

For every enrolled W-2 employee earning $25,000+/year and covered under an ACA-compliant group health plan:

• Pre-tax salary reduction: $1,200/month · $14,400/year
• Employer FICA savings (7.65%): $1,101.60/year
• Net employer savings: $681.60/employee/year
• Employee net take-home raise: +$71.96/paycheck (~$863/year)
• Workers' Comp reduction: 30–60% real-world at next audit cycle (because WC base = taxable payroll, which Section 125 reduces by definition)

A 50-employee company nets $34,080/year in net FICA + industry-specific WC reduction. Run the calculator → for your specific number.

Verified compliant — May 2025 + August 2025

The Section 125 Preventive Care program described above was independently reviewed in 2025 by:

• HitesmanLaw P.A. (May 5, 2025) — 8-page formal legal opinion from Darcy L. Hitesman, J.D., a Super Lawyer-rated ERISA attorney with 35+ years in IRC § 125 practice, AV-rated since 1998, co-author of the national ERISA compliance manual. Concludes the program "satisfies applicable IRS requirements."
• CBIZ Advisors LLC (August 22, 2025) — top-7 U.S. accounting firm, 135,000+ clients. Independent review confirms compliance with IRC §§ 125, 105, 106, ERISA, ACA, and COBRA when operated per its provisions.
• $500,000 insurance-backed legal protection per enrolled employer + $10,000 per employee participant.

Read the full compliance authority page → · IRS.gov — Cafeteria Plans (Section 125) · 26 U.S. Code § 125

A real result from a real company

Golden Living Point Loma — 51-employee San Diego assisted living facility · owner is a practicing attorney who read the IRS codes himself — saves $120,000/year through this exact program structure. Read the full case study →

This isn't a projection — it's reported, on the public record, from operators whose own CPAs and attorneys reviewed the documentation before signing. Browse the full case study set →

What employers actually receive from a Section 125 benefits plan

Beyond the FICA and WC line items on the financials, a complete Section 125 Preventive Care plan delivers a stack of employee-facing benefits the employer does not have to source, fund, or administer separately:

• 24/7 telemedicine access — virtual physician visits at zero copay for enrolled employees and their dependents. Reduces missed work for routine illness and prescription needs.
• 400+ free generic medications — direct-to-pharmacy fulfillment for common prescriptions, eliminating the formulary deductible most group plans carry on Tier 1 generics.
• Dental and vision savings programs — preferred-provider discounts on routine cleanings, exams, fillings, lenses, and frames for enrolled employees and their family members.
• Wellness platform access — biometric screening, lifestyle coaching, and condition-management tools that satisfy the participatory wellness component of the program.
• Mental health and counseling resources — short-term confidential counseling for enrolled employees, available without HR involvement.

The total carrying value of these benefits to the average enrolled employee is approximately $115/month, on top of the $72/paycheck net take-home raise produced by the FICA reduction. Employers who report on this internally typically frame it as "$187/month in total employee value at zero net cost to the company."

That framing is what shifts retention conversations during exit interviews and quarterly reviews. The benefit isn't the FICA savings on its own — it's the FICA savings plus the visible employee-facing value, both of which are produced by the same program structure.

How to verify it yourself

Three primary sources, all public:

1. IRS.gov — Cafeteria Plans — the law in the IRS's own words.
2. 26 U.S. Code § 125 — the federal statute itself.
3. The Hitesman opinion + CBIZ review — both share-able PDFs, available on your free 15-minute analysis call.

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