How To Create A Custom Section 125 Cafeteria Plan For Your Organization

Employers in the current business environment struggle to provide superior benefits without exceeding budget limitations. One of the most effective strategies is implementing a Section 125 Plan. Through IRS authorization Section 125 Cafeteria Plans create a vendor payment method which permits workers to use tax-free funds for qualified expenditures including insurance premiums alongside medical expenses. At Lumara Health, we help organizations of all sizes build and implement customized Section 125 Plans, integrated with advanced programs such as PCMP and SIMRP, to maximize value for both employers and employees.

Let’s explore how your business can create and benefit from a tailored Section 125 Plan with Lumara Health..

What is a Section 125 Cafeteria Plan?

A Section 125 Plan complies with Internal Revenue Code Section 125 to permit workers choices between taxable cash payments and tax-exempt benefits. Employees can choose benefits through a selection system similar to a cafeteria menu, that meets their individual needs.

Eligible benefits typically include:

Health insurance premiums
Dental and vision coverage
Flexible Spending Accounts (FSAs)
Dependent care assistance
Health Savings Accounts (HSAs)

These plans are a win-win: employees reduce their taxable income, and employers save on payroll taxes such as FICA and FUTA.

Advantages Of Implementing A Section 125 Plan

There are several tangible benefits for both employers and employees when adopting an IRS 125 cafeteria plan.

For Employers:

Reduced Payroll Taxes: Employers save an average of $600 per W2 employee annually on payroll taxes.
Cost-Efficient Benefits Enhancement: You should provide better benefit options that do not affect your salary costs.
Increased Retention and Satisfaction: Flexible benefits enable employees to maintain high morale along with reduced intentions to leave the organization.
Improved Recruitment: Companies which provide tax-efficient benefits create a competitive advantage for hiring new talent while ensuring easier recruitment of employees.

For Employees:

Lower Taxable Income: Pre-tax payments for medical care, along with other expenses, enable employees to receive a higher monetary amount.
Customized Coverage: The ability to choose personalized coverage gives employees better results than standardized benefit packages.
Increased Net Pay: The average employee benefits from an annual increase in wages amounting to 3 to 4 percent, which translates to $100 in additional take-home pay each month.
Enhanced Wellness: Preventative care and wellness programs through the healthcare benefit produce long-term health benefits and financial security for employees.

Integrating PCMP And SIMRP For Greater Impact

At Lumara Health, we elevate the value of your Section 125 Cafeteria Plan by integrating two additional components:

Preventative Care Management Plan (PCMP): The main objective of PCMP is to detect health risks in their earliest stages so organizations can prevent them from developing into chronic conditions. The health program includes routine screenings, together with mental health assessments and wellness guidance, so employees receive better health results with reduced future healthcare expenses.

Self-Insured Medical Reimbursement Plan (SIMRP): Through SIMRP employees can obtain tax-free compensation for medical expenses that consist of deductible amounts as well as copays and additional out-of-pocket costs. Self-insured medical reimbursement plans offer advantages for high-deductible health plan members, as they help employees access necessary care while avoiding financial difficulties.

By combining these programs, employers provide a more comprehensive employee benefits package—all while maintaining full IRS compliance.

The Lumara Plan: A Fully Managed Solution

Our flagship offering, the Lumara Plan, is a fully managed and automated benefits solution that integrates the IRS 125 cafeteria plan with PCMP and SIMRP. It is designed to provide maximum impact with minimal burden on your HR team.

Key Features for Employers:

$0 Out-of-Pocket Cost: Implement the Lumara Plan with no upfront or ongoing costs.
$600 Savings per W2 Employee: Achieved through reduced payroll taxes.
Automated Implementation: We handle setup, compliance, and management—fully rolled out in 30–45 days.
Reduced Healthcare Costs: Employers typically save $1,400 per employee in health claims over three years.
Higher Employee Satisfaction: Boost morale and productivity with tangible improvements to compensation and benefits.
Immediate ROI: The Lumara Plan has a direct, measurable impact on your bottom line within the first quarter of deployment.

Key Features for Employees:

Increased Take-Home Pay: Pre-tax deductions lead to more money in each paycheck.
Zero-Cost Telehealth: No copays for virtual doctor visits and mental health support.
Mayo Clinic Health Tools: Access to world-class health resources via a digital dashboard.
Wellness Incentives: Personalized coaching and rewards for preventive care engagement.
Expanded Coverage: Options for additional benefits, including Universal Life, Disability Insurance, and Critical Illness coverage.
Family Support: Includes coverage for spouses and dependents, providing added peace of mind.

Steps To Build A Custom Section 125 Cafeteria Plan with Lumara Health

Creating your plan is straightforward when you partner with Lumara Health. Here’s how we guide your organization through the process:

Initial Consultation: We start by learning about your workforce, existing benefits structure, and financial goals. Our team of compliance experts evaluates your eligibility and provides a detailed roadmap.

Custom Plan Design: We customize your Section 125 Cafeteria Plan with the right combination of PCMP and SIMRP options. Our approach is entirely data-driven and tailored to your business size and industry.

Compliance and Documentation: We handle all necessary IRS and DOL documentation to ensure your plan is compliant. This includes preparing the Summary Plan Description (SPD), adoption agreements, and nondiscrimination testing.

Employee Education and Enrollment: Our onboarding process includes virtual info sessions, FAQs, and one-on-one consultations. Employees understand the value of the benefits, increasing participation and satisfaction.

Ongoing Management and Support: Once implemented, we continue to manage the plan, monitoring compliance, processing reimbursements, and providing real-time reporting.

Why Choose Lumara Health?

Lumara Health is not just another benefits provider—we are your strategic partner in building more innovative compensation systems. What sets us apart?

End-to-End Management: From plan creation to daily administration, we handle everything.
IRS Compliance Guaranteed: Avoid costly mistakes with our expert guidance.
Cost-Neutral Model: Implement a robust plan without affecting your budget.
Proven Results: Our clients experience measurable savings and higher employee satisfaction within months.
Innovative Tools: Employees benefit from industry-leading wellness technology and education resources.

With Lumara Health, you’re not just offering benefits—you’re investing in your people and strengthening your company’s financial health.

Final Thoughts

Building a custom IRS 125 cafeteria plan is more than just a tax strategy—it’s a forward-thinking approach to employee wellness, financial efficiency, and long-term organizational growth. A partnership between your business and Lumara Health enables you to introduce a complete support system for all employees through their planned program.

Regardless of your scale as a business entity, you can implement the Lumara Plan for complete compliance, together with cost-saving benefits.

Ready to build your custom plan?
Visit https://lumara-health.com/ to get started or schedule a free consultation with our benefits experts today.