Section 125 Certification

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A Section 125 plan is an employer‐sponsored fringe benefit plan that is subject to the federal Internal Revenue Code Section 125. Some of the common names for this type of plan are cafeteria plan, flexible benefits plan, flex plan, and flexible spending arrangement.

Employer contributions that are considered IPERS‐covered wages are those contributions made to a Section 125 plan that can be received in cash or used to purchase benefits. 

  • The employer contributions must be uniformly available. Iowa Code section 97B.1A(26)(a)(1)(b) states that elective employer contributions shall be treated as covered wages only if made uniformly available and not limited to highly compensated employees. 
  • See the Employer Handbook (PDF, 10.75 KB), Section 4 (IPERS‐Covered Wages and Compensation), for a full discussion of coverage rules related to Section 125 plans.
  • Employer contributions that must be used to purchase benefits under a Section 125 plan (e.g., where the employee has no choice to take in cash) cannot be IPERS‐covered wages.  

Employers offering employer contributions to a fringe benefit plan must certify that their Section 125 plan meets all IRC requirements. Employer contributions to fringe benefit plans that have not been certified will be excluded from IPERS coverage.

Proceed with Caution

Section 125 plans are complex. If you are unsure which wages should be covered, submit your plan documents to IPERS for review. 


An IPERS-covered employer provides a benefit allowance of $2,500 in addition to all employees’ regular salaries. The employees can choose to use this allowance to either purchase Section 125 benefits or take as cash. The employees may use this allowance to pay for any combination of benefits (including participation in flexible spending accounts).
The organization requires all employees to purchase, at a minimum, single employee medical coverage for $1,000.

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Example 2
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In addition to the  single employee medical coverage, the organization requires all employees to purchase disability coverage at a cost determined by each employee's covered salary and age. 

In this situation, subtract the cost of the mandatory medical coverage ($1,000) and the cost of the mandatory disability coverage (which varies from person to person)  from the $2,500 benefit allowance. The result is the amount that is IPERS-coverage.

A variation in covered wages is permitted when the reason for it is consistently applied across all employees. Thus, in this case you would report slightly different IPERS-covered amounts for different employees. 

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Example 3
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The organization adopts a Section 125 plan provision allowing employees with proof of other medical coverage to opt out of the requirement to purchase the single employee medical coverage. 

In this situation, at first glance it may appear that the full $2,500 is IPERS-covered for employees who waive medical coverage in favor of cash (because it is an opportunity for them to received cash instead of benefits). However, this is not the case - the $1,000 cash option is not IPERS-covered because it is not available to employees who do not have insurance coverage through another source, so it is not considered uniformly available to all employees. 

Thus, $1,500 of the allowance is IPERS-covered (the $2,500 allowance minus the mandatory medical coverage costing $1,000).

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