What is a Section 125 / cafeteria plan and do I need one?

A Section 125 plan (also called a cafeteria plan, after the section of the Internal Revenue Code) is the IRS-required structure that lets employees pay their share of certain benefits — health, dental, vision premiums and FSA contributions — with pre-tax dollars through payroll deduction. Without a Section 125 plan in place, those payroll deductions would have to be post-tax, costing employees roughly 25–35% more in real terms and costing the employer FICA on the deducted amount. Setup is inexpensive (typically a few hundred dollars in plan-document fees) and ongoing administration is light. Effectively any employer offering health, dental, vision, or FSA benefits should have a Section 125 plan in place — it's near-universal because the math is so one-sided. We confirm the Section 125 document is current and signed every time we set up new benefits, and we coordinate the document with the payroll provider to ensure deductions actually flow pre-tax.