What is a 125 Plan, and How Does It Benefit You?

The IRS Code Section 125 enables employers to establish an employee benefit arrangement or plan in which active employees can allocate a portion of their salary before taxes to cover eligible expenses such as insurance premiums, medical costs, and dependent day care expenses. By participating in a Section 125 Cafeteria Plan, employees can reduce their taxable income, resulting in higher take-home pay. Moreover, employers can potentially save up to 20% of every dollar that flows through the plan; some may save as much as 40%, depending on their tax bracket.

Eligibility for 125 plan benefits through payroll deduction is extended to regular full-time, classified, management, and academic employees from their first day of employment. The administration of this plan is entrusted to the American Family Life Assurance Company (AFLAC). Enrollees must renew their participation for flexible spending accounts and dependent care accounts annually during the open enrollment period in September and October. However, all other active AFLAC plans will passively roll from year to year unless an employee requests a change during the open enrollment period. For more information, please reach out to the Human Resource Benefit Analyst at 530-623-2861 x223.

Examples of Employee Benefits Under the TCOE 125 Plan:

• Deductions for employee health premiums (including medical, vision, and dental)
• Contributions to employee flexible spending accounts and health savings accounts
• Access to group accident, critical illness, hospital indemnity, dependent day care, and various other voluntary supplemental insurance policies.