Section 125 Plan Document: What It Must Include and Who Provides It
By Tax Benefit Strategies | Published November 2, 2026 | Updated November 2026 | 7 min read
A Section 125 plan document is the written plan that sets the rules for your cafeteria plan. Federal law requires one. Without it, the plan is not a cafeteria plan, and employee elections result in taxable income.
Here is what the document must include, when it must be in place, how it differs from a summary plan description, and what to check in a template.
What Is a Section 125 Plan Document?
A Section 125 plan document is the written plan that creates your cafeteria plan. It states which benefits employees can choose, who can take part, how elections work and how contributions are made.
It is not your insurance policy, your enrollment form or your benefits guide. Under the proposed regulations, the plan document can be made up of more than one document. It can also refer to other written benefit plans without repeating their full terms.
Is a Section 125 Plan Document Required?
Yes. Section 125(d) defines a cafeteria plan as “a written plan.” The IRS says the written plan must specifically describe all benefits and set the rules for eligibility and elections.
The detailed rules are in proposed regulations from 2007. The IRS says taxpayers may rely on them until it issues final regulations.
The statute has no exception for small plans. A premium only plan (POP) needs a written plan too, even though it covers only health premiums.
What Must a Section 125 Plan Document Include?
The proposed regulations list six items that every plan document must contain:
| Required item | What the document must state |
|---|---|
| Benefits | A specific description of each benefit, including the periods of coverage |
| Participation | The rules for who can take part, and a requirement that all participants are employees |
| Elections | When employees can elect, which period an election covers, and that elections are irrevocable except for permitted changes |
| Contributions | How employer contributions are made, such as salary reduction, employer flex credits or both |
| Maximum amounts | The maximum salary reduction for any employee, as a dollar amount, a percentage of pay or a method to calculate it |
| Plan year | The plan year of the cafeteria plan |
The terms must apply uniformly to all participants. Some plans must state more:
- Flexible spending accounts (FSAs): the FSA rules, such as the uniform coverage rule and the use-or-lose rule
- Grace period: the grace period provisions, if the plan has one
- Paid time off: the rule for the order in which elective and nonelective time off is used
- 401(k) contributions: the maximum elective contribution, and the extra written-plan terms for 401(k) deferrals
- Health FSA distributions to HSAs: the provisions for these distributions, if the plan allows them
A plan may also use default elections, such as automatic enrollment. Put those rules in the election procedures.
When Must the Plan Document Be in Place?
The plan must be adopted and effective on or before the first day of the plan year it applies to. Do not start pre-tax deductions before that date.
Amendments follow a similar rule. An amendment must be in writing, and you can make one at any time during the plan year. It applies only to periods after the later of its adoption date or its effective date.
So a change does not reach back. If you add a benefit, the plan can pay only for expenses incurred after that date. If a limit in your document changes, such as the dependent care FSA limit, amend the document before you apply the new limit.
What Happens If the Plan Document Is Missing or Wrong?
The result is all or nothing. If there is no written plan, or the plan leaves out a required item, it is not a cafeteria plan. An employee’s election between taxable and nontaxable benefits then results in gross income to the employee.
That puts the pre-tax treatment of the deductions at risk, and with it the payroll tax savings.
A correct document is not enough on its own. The same result applies if the plan does not operate according to its written terms. The proposed regulations give examples of these failures:
- Paying for expenses incurred before the plan or a new benefit was adopted and effective
- Offering benefits that a cafeteria plan cannot include
- Letting employees change elections outside the permitted events
- Not following the FSA use-or-lose or uniform coverage rules
How Is a Plan Document Different from a Summary Plan Description?
They come from two different laws, and they have different readers.
| Plan document | Summary plan description (SPD) | |
|---|---|---|
| Required by | Section 125 of the Internal Revenue Code | ERISA, 29 U.S.C. § 1022 |
| What it does | Creates the plan and sets its rules | Explains an employee benefit plan to participants |
| Written for | The employer and the plan administrator | Participants, in language the average participant can understand |
Whether you need an SPD depends on the benefits in your plan and how ERISA applies to them. Ask your plan provider or benefits counsel.
Can You Use a Section 125 Plan Document Template?
The proposed regulations list what a plan must contain. They do not require one specific form, so they do not rule out a template.
The risk is fit. A template causes problems when it does not match how your plan runs. Before you adopt one, check these items:
- Every benefit you offer is described, and no benefit you do not offer remains
- The plan year matches your benefits year
- The election rules match how you enroll employees, including any automatic enrollment
- The maximum salary reduction is filled in
- FSA and grace period terms are included only if your plan has them
- The employer name and effective date are complete, and the plan is adopted before the first day of the plan year
A POP template covers premiums only. If you add other benefits, amend the document first. Ask your tax advisor or benefits counsel to review any template before you adopt it.
Get a free savings estimate based on your employee count.
Get Your Savings Estimate →Who Provides the Plan Document in Our Program?
The program provides the plan document with the agreements, at no separate charge. You do not need to draft one or buy a template.
We send the documents by DocuSign in step 2 of setup, and you review and sign them online. The plan’s third-party administrator handles nondiscrimination testing, and the plan is offered to all employees. When rules change, the carrier amends the plan document.
The program requires at least 50 employees and is available in 40 states. See compliance and state availability and what a Section 125 plan costs an employer.
Frequently Asked Questions
Is a Section 125 plan document required?
Yes. Section 125 defines a cafeteria plan as a written plan. Without one, the plan is not a cafeteria plan, and employee elections result in taxable income.
Does a premium only plan need a plan document?
Yes. A premium only plan (POP) is a Section 125 plan, so it needs a written plan like any other cafeteria plan.
Is a plan document the same as a summary plan description?
No. The plan document is the written plan that Section 125 requires. A summary plan description (SPD) is a plain-language summary that ERISA requires for covered benefit plans.
Can a Section 125 plan document be changed during the year?
Yes. An amendment must be in writing, and it can be made at any time. It applies only to periods after the later of its adoption date or its effective date.
How much does a Section 125 plan document cost?
Prices vary by provider, and many providers charge for it. In our program, the plan document comes with the agreements at no separate charge.
Sources
The rules on this page come from these official sources.
- Cafeteria plans: 26 U.S.C. § 125
- Plan document rules: proposed cafeteria plan regulations, 72 Fed. Reg. 43938
- Written plan: IRS FAQs on cafeteria plans
- Election changes: 26 C.F.R. § 1.125-4
- Summary plan descriptions: 29 U.S.C. § 1022
This article is general information, not tax or legal advice. Talk to your tax advisor about your situation.