What Is a Section 125 Plan? | Trevia Benefits Employer Guide
Learn how Section 125 cafeteria plans work, how they reduce payroll taxes, and how Trevia Benefits helps you offer zero-cost benefits that boost retention and cash flow.
Introduction
If you’re looking for ways to cut costs while enhancing your employee benefits package, you’ve likely heard of a Section 125 plan, also known as a cafeteria plan. For many employers, these plans create a win-win scenario: employees keep the same take-home pay (or better), while businesses save on payroll taxes and fund additional benefits at no cost.
At Trevia Benefits, we specialize in helping companies leverage this IRS-approved strategy to unlock $600–$1,800 in annual savings per employee — money that can be reinvested into zero-copay benefits employees actually value.
What Is a Section 125 Plan?
A Section 125 plan comes from the Internal Revenue Code (IRC Section 125). It allows employers to offer certain benefits on a pre-tax basis, meaning employees don’t pay federal income tax, Social Security, or Medicare taxes on those contributions.
Because of this, both employers and employees save:
- Employers reduce payroll taxes (FICA).
- Employees reduce taxable income and keep more of their paycheck.
Think of it like a cafeteria menu — employees can “pick and choose” from a list of eligible benefits while keeping their net pay the same.
How a Section 125 Plan Works
Here’s a simplified breakdown:
- Set Up the Plan – Employers establish a written Section 125 plan document that defines which benefits are offered pre-tax.
- Employee Elections – Employees choose benefits they want, such as health insurance, dental, vision, or supplemental coverage.
- Payroll Integration – Contributions are deducted from payroll before taxes, lowering taxable wages.
- Employer Savings – Employers save around 7.65% on each dollar redirected pre-tax (FICA taxes).
At Trevia Benefits, we take this framework further by layering in fully managed, zero-copay benefits — like telehealth, prescriptions, mental health support, and preventative care — without requiring employers to change carriers or disrupt their current plans.
Types of Section 125 Plans
There are a few common formats:
- Premium-Only Plan (POP): The simplest form, allowing employees to pay health insurance premiums pre-tax.
- Full Cafeteria Plan: Employees choose from a menu of multiple pre-tax benefits.
- Flexible Spending Accounts (FSAs): Pre-tax accounts for medical or dependent care expenses.
Trevia Benefits uses a modernized approach, combining a cafeteria plan with preventative care programs and tax savings to deliver net-new benefits without new costs.
Employer Benefits of a Section 125 Plan
- Payroll Tax Savings: Average savings of $600–$1,800 per employee annually.
- Improved Recruiting & Retention: High-value benefits make your company more competitive.
- Cash Flow Boost: Around $90/month per employee freed up for reinvestment.
- No Budget Increases: Funded entirely through existing payroll tax savings.
- Compliance Confidence: Structured under IRS, ACA, and HIPAA rules.
Employee Benefits
Employees see direct value without losing take-home pay:
- $0 copay virtual care and counseling
- Prescription coverage (hundreds of generic meds)
- Preventative screenings and wellness visits
- Family coverage included
- Financial protection with group life insurance
These benefits create higher satisfaction and loyalty — helping employers cut turnover costs and build a healthier, more engaged workforce.
Compliance Considerations
A Section 125 plan must meet IRS requirements to remain compliant:
- A written plan document is required.
- Only eligible employees may participate.
- Elections typically must stay in place for the plan year (unless a qualifying life event occurs).
At Trevia Benefits, we provide audit-ready documentation and year-round compliance monitoring, so you can focus on running your business while we handle the details.
Real-World Example
A manufacturing company with 150 employees implemented Trevia’s Section 125 program. Within 45 days, they:
- Saved over $180,000 annually in payroll taxes.
- Added telehealth, prescriptions, and counseling for employees and their families at no cost.
- Reported a measurable boost in retention within 6 months.
Get Started Today
At Trevia Benefits, we make implementation simple. We connect with your payroll provider, apply the Section 125 framework, and deliver new benefits in 30–45 days with no disruptions.
👉 Book your 10-minute consultation
👉 Or email us directly at help@treviabenefits.com
Give your employees benefits they’ll love — and your business the savings it deserves.
