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In the mid 70's the Employers' Council on Flexible Compensation adopted Section 125 to encourage employers to establish and maintain quality benefit plans that do not discriminate against non-highly paid employees. It allows an employee to build a benefit plan from a menu of items to suit individual needs.

A Section 125 "FLEX" plan helps the employee by allowing certain benefits to be paid out of pre-tax dollars. The employer benefits by paying reduced FICA, FUTA, etc. Regulations require that:

  • It must be a separate written benefit plan
  • All employees must be informed
  • Plan must offer cash or qualified benefits
  • Plan documents and employee Salary Reduction Agreements must be signed before the plan effective date.

A FLEX Plan can have three subsections: Section 105 - Unreimbursed Medical Expenses; Section 106 - Health and Accident Premium only Plan ("POP"); Section 129 - Dependent Day Care. Caution must be used when choosing to participate in these. For example, employees who participate in the Unreimbursed Medical Plan must use the dollars during the plan year or they lose them; also, any disability benefits paid would be taxable on a policy that had premiums paid under the POP. Overall, the opportunity to participate in a FLEX Plan has benefits that far outweigh the negatives.

One of the factors which caused employers to choose not to offer a FLEX Plan to employees was the cost of administration. Outside firms frequently would charge a substantial initial fee to put the program in place, and then charge an annual (or monthly) fee (usually based on a "per participant" rate) for administration.

We advocate a FLEX Plan that is a very comprehensive offering with minimal administrative charges, if any. Employers that include POP options for specific specialty insurance products may have all fees waived. Employers can add a new FLEX Plan for new benefits, or they may convert to our new FLEX Plan at the end of a plan year. Most plan years coincide with group health insurance renewal.

Our recommended FLEX Plan can provide three of the required nondiscrimination tests on Full Plans and the concentration test for Premium Only Plans. The employer's tax or legal advisor must review these to determine the "pass or fail".

Our group benefits administrators assist in the FLEX Plan "start-up" and the enrollment process. Materials are provided for employee meetings, employee notification, and employee registration. During the year we will help analyze optional new benefits and assist in incorporating them into the plan.