Many employers want to save on payroll taxes and offer better benefits to their team. A Section 125 plan is one option that helps with both. But here’s something many don’t realize, if you fail to maintain your Section 125 plan the right way, it can lead to tax problems, penalties, and even unhappy employees. 

In this blog, we’ll explain what can go wrong when a Section 125 plan is not managed properly. We’ll also show you how Elevate+ is more than just a basic Section 125 plan. It includes powerful extras like PCMP and SIMRP to keep your plan compliant and your team protected.

What Is a Section 125 Plan?

A Section 125 plan, or cafeteria plan, assists employees in paying for health, dental, and vision coverage using pre-tax funds. That leaves them with more in their take-home pay and also saves the employer’s payroll taxes. However, to preserve those tax savings, the plan must comply with IRS requirements. It requires the proper documents and must be updated annually. If the scheme is not structured or administered in the proper manner, the employee, as well as the employer, risks losing the tax savings and might have to pay more. That’s why maintenance is essential.

What Happens If You Don’t Maintain the Plan?

If you fail to keep your Section 125 plan updated or forget to follow the rules or any reason, it can cause numerous problems for your business and your employees. These issues can lead to a lot of issues in the form of money, time, and trust. Following are the things that can go wrong:

• Loss of Tax Savings: When the plan isn’t managed properly, employees may have to pay taxes on benefits like health insurance. This reduces their take-home pay. At the same time, employers lose payroll tax savings, about $600 per W2 employee every year. If you have around 100 employees, it will be around $60,000 lose each year.
• IRS Penalties: The IRS can check your plan at any time. If they find mistakes or missing documents, your business could face fines and may have to pay back taxes. These audits are stressful, take time, and can be expensive to fix.
• Unhappy Employees: If benefits become taxable, employees will see smaller paychecks. This can lead to frustration and lower morale. When employees feel unhappy or confused about their benefits, they are more likely to leave.
• Compliance Issues: A Section 125 plan has to follow certain rules. If your plan document is missing, outdated, or not updated each year, the IRS may say your plan isn’t valid. That means no tax savings, and a big problem for your business.

How Elevate+ Solve This Problem?

At Elevate+, we go beyond a basic Section 125 plan. Our program leverages Section 125, but it also includes:

• Preventative Care Management Plan (PCMP)
• Self Insured Medical Reimbursement Plan (SIMRP)

Together, these create a fully managed, highly compliant solution that gives better results to both employers and employees.

Employer Benefits with Elevate+

When you choose the Elevate+ program, you’re choosing a smarter, more complete solution for your employee benefits. It’s designed to save money, improve employee satisfaction, and keep everything fully compliant. Here’s what you can expect:

• You can save around $600 per W2 employee every year.
• A company with 100 employees can save up to $60,000 annually.
• There is no out-of-pocket cost to get started.
• The rollout is fast and simple, usually done in 30 to 45 days.
• Claims can be reduced by 5-10%.
• Employees are more likely to stay and perform better.
• Your business starts seeing savings right away.

Employee Benefits with Elevate+

With Elevate+, employees get more than just tax savings. They receive real, valuable benefits that support their health, well-being, and financial peace of mind. Here’s what they can expect:

• Their take-home pay is increased by $100/month. 
• They pay $0 copay for telemedicine, virtual care, wellness visits, and mental health support.
• They get access to tools and resources from the Mayo Clinic, along with a personal health dashboard.
• The plan includes coverage for couples counseling and addiction recovery
• Spouse and dependent coverage is also included, offering support for the whole family.

Conclusion: Failure to Maintain Section 125 Plan

If you don’t take care of your Section 125 plan, it can cause serious problems. You could lose tax savings, face IRS penalties, and upset your employees with smaller paychecks. These issues can hurt your business and create a lot of stress.

That’s where Elevate+ comes in. It’s not just about saving on taxes. Elevate+ combines Section 125 with a Preventative Care Management Plan (PCMP) and a Self Insured Medical Reimbursement Plan (SIMRP). This makes it one of the most complete and trusted benefit programs available today. It’s easy to set up, fully managed, and helps both you and your employees do better.

Don’t Fail to Maintain Section 125 Plan!

Don’t risk costly compliance mistakes. Elevate+ gives you a smarter, fully managed benefits program that includes Section 125, PCMP, and SIMRP. Book your free 10-minute consultation or request a custom proposal today to protect your business and support your team.