Every employer wants to offer improved benefits without blowing the budget. And workers? They’d prefer more from their benefits—actual assistance that matters, not at the cost of a substantial share of their paycheck. The Section 125 cafeteria plan has long been a way to offer tax savings and benefit options, but on its own, it’s just the starting point.
Enter the Lumara Plan. While it does include a Section 125 cafeteria plan, it does so much more because it also includes a Preventative Care Management Plan (PCMP) and a Self-Insured Medical Reimbursement Plan (SIMRP). What does all that do? Develops one of the most compliant, benefit-dense plans available—and without any cost to employers or employees.
Here, then, is what an employer should know about standard section 125 cafeteria plan rules and the way Lumara turns this standard benefit into a vital, modern solution.
What Is a Section 125 Cafeteria Plan?
To put it simply, a Section 125 cafeteria plan allows employees to select some benefits that are pre-tax and not subject to income tax. The name “cafeteria” originated due to the employee having a list of benefits from which to select, as opposed to, say, the selection of food in a buffet line. The principal advantage? Employees never have to deduct federal income or FICA taxes on dollars they contribute toward particular benefit options. And when workers save taxes, their employers do too. But here’s the catch: the traditional section 125 cafeteria plan has a long list of rules and compliance provisions—and most often fails to achieve the maximum potential of tax-favored programs. That’s why Lumara doesn’t stop at a cafeteria plan. It builds on it. If you’re considering offering or expanding a Section 125 cafeteria plan, here are some of the baseline legal requirements you’ll need to follow:
1. Written Plan Document : This is non-negotiable. To remain compliant, the plan must have a formal written document in place. This document outlines which benefits are included, who is eligible, and how elections are made and changed.
2. Eligible Employees : Generally, all full-time employees may participate in a Section 125 cafeteria plan. Independent contractors, partners in a partnership, and shareholders with more than a 2% interest in an S-corp do not qualify.
3. Authorized Benefits: The plan may only offer certain types of pre-tax benefits—such as health insurance premiums, dental/vision coverage, dependent care assistance, and medical expense reimbursements. Cash or gift-type benefits don’t qualify.
4. Uniform Election Periods: Workers typically select their benefits once a year during annual enrollment. Mid-year changes are only allowed under qualifying life events (like marriage, having a baby, or losing other coverage), under IRS rules.
5. Non-Discrimination Testing : The plans are tested every year to ensure they don’t discriminate against top-paid employees or large executives. Failing these tests can result in loss of tax benefits. These are the core section 125 cafeteria plan rules—but they only scratch the surface when it comes to constructing a strategic, value-rich benefit program.
Why The Lumara Plan Exceeds Section 125
We at Lumara think employers should aim higher than the minimum. That’s why our solution doesn’t end at compliance—it redefines how employers care for their people and shield their payroll.
The Lumara Plan includes a section 125 cafeteria plan, but extends it further with the inclusion of these elements seamlessly:
- A Preventative Care Management Plan (PCMP)
- A Self-Insured Medical Reimbursement Plan (SIMRP)
The three-part structure ensures full IRS compliance while offering more financial and health benefits to employers and employees alike.
A Smarter Way To Save: Employer Benefits With Lumara
Employers can achieve measurable cost savings in a simple way using Lumara without added complexity, cost, or extra effort.
Here’s what businesses receive:
- Save approximately $600 per W2 employee per year (or $60,000 per 100 employees)
- $0 out-of-pocket cost to roll out or keep the program
- Decreased healthcare costs through decreased utilization (~$1,400 reduction over three years)
- Implementation in just 30–45 days with full support
- Boost employee satisfaction and retention
- Bottom-line impact immediately
And since the Lumara Plan is automated and managed on your behalf, there’s no administrative burden. It’s easy, intelligent, and sustainable.
A Healthier Team with No Trade-Offs: Employee Benefits with Lumara
Staff assume that more benefits equal reduced take-home pay, not with Lumara.
This is what they receive:
- A 3–4% net increase in take-home pay (approximately $100/month)
- $0 copay Primary care, mental health, and wellness coaching through Telehealth
- 24/7 on-call medical professionals anywhere, anytime
- Access to Mayo Clinic health dashboards and tools
- Universal Life, Critical Illness, and Disability coverage options
- Extended benefits to dependents and spouses
None of this necessitating a change in their current insurance plan or deductibles. It’s a win-win that actually puts value back into their lives—financial and health-related.
More Than Compliance—It’s a Win-Win Solution
Too often, businesses overlook the hidden costs in their payroll taxes and the unrealized potential in their benefits. The Lumara Plan addresses both problems at once. Drawing on the foundation of a Section 125 cafeteria plan and supported by the strength of PCMP and SIMRP, Lumara offers:
- A legally compliant, IRS-approved design
- Significant cost savings to employers
- Health and well-being improvements for employees
- A simple, no-hassle installation process
This is not another one-size-fits-all benefits plan. It’s a clever solution that innovative employers are employing to build stronger, healthier teams—without costing an arm and a leg.
Frequently Asked Questions
What is it about the Lumara Plan that separates it from a typical Section 125 cafeteria plan?
Unlike a standard section 125 cafeteria plan, the Lumara Plan integrates a Preventative Care Management Plan (PCMP) and a Self-Insured Medical Reimbursement Plan (SIMRP). This offers a fully compliant, benefit-rich structure that maximizes employer savings while enhancing employee benefits, without cost to either party.
Will the Lumara Plan require a modification to our existing insurance or benefit structure?
No. The Lumara Plan is an addition to your current benefits. No one needs to replace your insurance or disrupt current plans. It’s a seamless enhancement designed to accomplish improved outcomes without radical change.
Is the plan really free to employers and employees?
Yes. There’s no up-front cost of implementation or ongoing maintenance out-of-pocket. Employers realize payroll tax savings, and employees realize added net pay—along with the value of having access to high-value benefits like telehealth and wellness tools.
How quickly can our company put the Lumara Plan into place?
Most organizations can implement the Lumara Plan in just 30–45 days. Our team handles the setup and onboarding, ensuring a smooth, automated rollout with minimal lift from your HR or finance teams.
Ready to Take a Smarter Approach?
If scaling is in your company’s future, no moment is more opportune than the present to consider how the Lumara Plan can be incorporated into your strategy. We’ve already delivered benefits-enhancing access to more than 40,000 employees and kept millions of dollars of unwanted tax waste from employers’ pockets. We can guide you to a smarter path—one that benefits your people while protecting your margins. Book your 10-minute consultation to get a free proposal by speaking with an expert who can walk you through the next steps
As benefits are meant to help everyone, and now with Lumara, they truly can.
