Section 125 plans enable employees to choose from two or more benefits to build a customized benefit plan paid for with pretax dollars.
Section 125 plans are popular because employees are able to purchase benefits they deem valuable. The two main forms of Section 125 plans are Premium Only Plans and Flexible Spending Accounts (FSAs).
Premium Only Plans allow employees to pay insurance premiums with pretax dollars, increasing take-home pay. Benefits typically covered by a Premium Only Plan include:
- Health insurance
- Dental insurance
- Vision insurance
- Accidental death and dismemberment coverage
- Disability insurance
- Group-term life insurance
FSAs are another prevalent form of Section 125 plans. Using pretax dollars, employees can make contributions to an FSA that can be used for future reimbursement of eligible costs. The three types of FSAs are:
- Medical Care Reimbursement
- Dependent Care Assistance
- Adoption Assistance
Employers, along with employees, benefit from Section 125 plans.