Section 125 Plan Document Requirements — What the IRS Requires

A Section 125 cafeteria plan requires a formal written plan document meeting specific IRS requirements. Here's what must be in the document, who drafts it, and how the plan administrator operates it on your behalf.

This post unpacks the underlying authority, the practical implications for employers, and how the program structure stays inside the lines.

The Section 125 Preventive Care variant we work with carries a complete compliance documentation set: the May 2025 HitesmanLaw P.A. opinion letter (8 pages), the August 2025 CBIZ Advisors LLC independent review, the underlying IRS authority (IRC §§ 125, 105, 106, plus Rev. Rul. 69-154, Situation 3), and $500,000 of insurance-backed legal protection per enrolled employer. The documentation is share-able with your CPA, your benefits broker, your attorney — and routinely is, before any client signs.

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

Affinity Hospice — multi-state hospice care · CFO Ariel Joudai (CPA) commissioned the CBIZ review before enrolling — saves $140,000+/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 the IRC § 125(d) written plan document must contain

IRC § 125(d) and Treasury Reg § 1.125-1 specify the minimum content of a written cafeteria plan document. A plan that lacks any of these elements technically fails the IRC § 125 requirements, which means salary reductions made under the plan are includible in employees' gross income — the worst-case audit outcome. The plan administrator drafts the document at enrollment and updates it for each plan year:

1. A specific description of each benefit available under the plan, including detail on the period during which the benefit will be available and the qualified-benefit categories (medical, dental, vision, dependent care, etc.).
2. The plan's rules governing participation — eligibility requirements, waiting periods (if any), and the procedure for enrollment.
3. The procedure governing employee elections — including the timing requirements (elections before the plan year), the form of election (written or electronic), and the rules for irrevocability of elections during the plan year.
4. The maximum amount of employer contributions under the plan, expressed either as a dollar amount or a formula.
5. The plan year — the 12-month period for which elections are made and the plan operates.
6. The plan's procedure for handling experience gains (forfeitures, if applicable, particularly for FSA components).

Beyond the IRC § 125(d) requirements, ERISA imposes additional documentation obligations: a Summary Plan Description (SPD) that describes the plan in plain language for employees, a Summary of Material Modifications (SMM) when significant changes occur mid-year, and Form 5500 annual reporting for plans of certain sizes. The plan administrator handles all three under the standard administrative agreement; the operator receives copies of each filing for the corporate records.

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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