Section 125 Flexible Benefit Plan Basics
DEFINITION
Under Internal Revenue Code Section 125, a flexible compensation program is defined as a written plan under which all participants are employees, and the participants have a choice among two or more benefits, one of which is cash. Aside from cash, the benefits offered must be one or more of the non-taxable benefits defined under the Tax Reform Act of 1986 (TRA 86).
Section 125 plans do not include any benefits that provide for deferred compensation. Profit sharing and stock bonus plans including a qualified cash or deferred arrangement are covered under Section 401(k)(2) of the Internal Revenue Code.
REQUIREMENTS
In order for a plan to be qualified it must have the following features:
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It must be a written plan
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All participants must be employees (Sub S owners with 2% or more ownership, partners, members of a LLC, and sole proprietors are not eligible and may not participate. Unlike sole proprietors, the family members of partners or 2% or more shareholders cannot participate in a cafeteria plan maintained by the partnership or Subchapter S corporation due to the attribution rules contained in Code 318.)
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It must offer choices between two or more qualified benefits (taxable and nontaxable), one being cash
BENEFIT OPTIONS
GROUP PREMIUMS:
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Health Insurance Premiums
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Dental Insurance Premiums
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Cancer Insurance Premiums
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Vision Insurance Premiums
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Accident Insurance Premiums
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Hospital Indemnity Insurance Premiums
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Intensive Care Insurance Premiums
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Term Life Insurance Premiums (employee only, up to $50,000 death benefit)
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Disability Insurance Premiums
FLEXIBLE SPENDING REIMBURSEMENT ACCOUNTS:
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General-Purpose Medical Expenses
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Limited-Purpose Medical Expenses
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Post HSA Deductible Medical Expenses
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Dependent Care Expenses
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Individual Premium Expenses
Benefits Design Group, Inc. offers three variations of Section 125 Flexible Benefit Plans:
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