A lot of firms start with a Section 125 cafeteria plan, which is commonly a Flexible Spending Account (FSA), when they want to provide their employees real tax breaks and benefits. FSAs do give some advantages before taxes, but they don’t go very far in terms of what Section 125 authorizes.
On the other hand, comprehensive reimbursement plans, like those included in the Lumara Plan, make the most of the 125 plans employee benefits. These new plans are ready for compliance and include pre-tax deductions, structured medical reimbursements, cost recovery, and full administrative assistance.
What happened? A program that has a big effect on the workplace, saves businesses money, and gives workers useful benefits every day.
What is a cafeteria plan under Section 125?
With a Section 125 cafeteria plan, workers may utilize money taken out of their paychecks before taxes to pay for certain perks. The term “cafeteria” plan comes from the fact that it gives you a menu of choices, such as:
- Health insurance premiums
- Flexible spending accounts
- Dependent care accounts
But merely giving an FSA as part of a Section 125 plan doesn’t do anything. Most of the time, not many employees take part, the tax savings are small, and employers don’t get much out of the extra work they have to do.
That’s where the Lumara Plan changes what a Section 125 plan can do.
A Narrow Use of Section 125: Flexible Spending Accounts
One of the most prevalent Section 125 benefits is an FSA. It lets workers put away a certain amount of their pre-tax income each year to pay for medical costs that aren’t covered by insurance.
What FSAs Offer
- Employees may lower their taxable income by putting money into the account.
- Employers pay less in payroll taxes, which is normally 7.65% of each dollar paid.
- You may spend the money for things like copays, medicines, and dental treatment that are allowed.
But FSAs also have certain problems
- Low Participation: Only a small number of workers usually choose to participate.
- Contribution Limits: The IRS sets limits on how much you may save each year.
- The Use-It-or-Lose-It Rule: Money that isn’t utilized before the end of the year will be lost.
- No Employer Cost Recovery: Employers pay for administrative fees but don’t get their money back.
- Minimal Effect: FSAs usually only affect a tiny part of the entire payroll.
In summary, FSAs aren’t really useful when you look at all the other 125 programs employee benefits. They know them, but they’re not really strategic.
The Lumara Plan: A Full Plan for Getting Money Back
The Lumara Plan is based on a Section 125 cafeteria plan, but it substitutes the weak FSA concept with a strong, completely integrated framework. It blends pre-tax deductions, self-insured reimbursement, and employer cost recovery into one easy-to-use package that gets results.
The Lumara Plan Has
- Section 125 Deductions Before Taxes: Fully compliant and applied to all qualifying W-2 employees.
- The Pre-Tax Cost Management Program (PCMP): Sets up payroll deductions that save you money on taxes.
- SIMRP (Self-Insured Medical Reimbursement Plan): Pays back IRS-approved medical bills without taxes.
- Claims Administration: A system that is compliant with HIPAA, checks claims, and lowers risk.
- Employer Cost Recovery: Uses post-tax offsets to pay for plan expenses without spending any money.
This all-encompassing strategy makes sure that the plan is not only legal, but also works to save employers money while giving workers the same level of value.
Comparison: FSAs vs The Lumara Plan
- Voluntary vs. Automatic
- FSAs: Only allow minor voluntary payments.
- Lumara Plan: Affects 100% of eligible payroll, which means big and predictable savings.
- FSAs: Only allow minor voluntary payments.
- Employee Participation
- FSAs: Voluntary, and less than 30% of those who are eligible participate.
- Lumara Plan: All W-2 workers who qualify are immediately signed up.
- FSAs: Voluntary, and less than 30% of those who are eligible participate.
- Risk Management
- FSAs: Employers risk putting money into annual funds that they may not be able to get back if workers quit.
- Lumara Plan: Only pays claims once verified — no upfront employer cost.
- FSAs: Employers risk putting money into annual funds that they may not be able to get back if workers quit.
- Funding Source
- FSAs: Funded solely by employee contributions.
- Lumara Plan: Uses employer tax savings and cost recovery — no additional investment needed.
- FSAs: Funded solely by employee contributions.
- Employee Value
- FSAs: Employees must cautiously manage contributions.
- Lumara Plan: Pays employees up to $1,000 a year tax-free for common medical costs.
- FSAs: Employees must cautiously manage contributions.
Why Employers Are Changing
Employers that want to save more than just the basics on taxes are switching from typical FSAs to more comprehensive, performance-based plans.
This is why
- Wider Effect on Payroll: FSAs apply only to participating employees. The Lumara Plan covers all eligible staff.
- Predictable ROI: Payroll tax savings are tracked monthly.
- Ease of Implementation: The Lumara team manages setup, onboarding, and compliance.
- Zero Net Cost: Funded entirely by tax savings — no extra spend required.
Results that Matter for Both Employers and Workers
- Employers save $1,400 to $2,200 per enrolled employee in payroll taxes
- Full IRS compliance under Section 125
- Consistent enrollment for all eligible workers
- No setup or admin costs to the employer
- Employees may receive up to $1,000 annually tax-free
- No pre-funding or budgeting needed
- Simple, secure claims process
- Lower taxable income and higher take-home pay
The Lumara Plan is a better way to get employee benefits than other 125 programs because it strikes a good mix between savings and value.
In Conclusion: Which 125 Plan Gives You More?
The decision between a simple FSA and a fully integrated reimbursement plan boils down to how much you value each one. FSAs are easy to use and only assist a few workers. The Lumara Plan is a full-scale solution that assists all qualified W-2 employees and saves the business a lot of money on payroll taxes.
The Lumara Plan is a better approach for companies to use Section 125 cafeteria plan requirements than merely checking a box. It’s not only about paying less in taxes; it’s also about giving better benefits that really work.
Use Section 125 to Its Fullest Potential
The Lumara Plan is designed to get things done. It combines everything of Section 125, SIMRP, and PCMP into one smooth system, so you may save money and get actual advantages without any trouble.
Check out the Lumara Plan to get started right now.
