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Tax-Advantaged Plans

Employers may sponsor one or more tax-advantaged plans to offer employees the opportunity to pay or be reimbursed for certain expenses on a tax-free basis. These plans are permitted by the Internal Revenue Code, which is why they are often referred to by their Code sections: Section 125 and Section 105. 

Tax-advantaged plans allow employees to redirect pretax deductions from their paychecks to pay or be reimbursed for certain eligible healthcare or dependent care expenses tax free. This results in tax savings for employees and employers, and it’s why the plans are called “tax-advantaged.”

The Affordable Care Act (ACA) imposed additional restrictions on health Flexible Spending Accounts (FSAs) and Health Reimbursement Accounts (HRAs) beginning in 2014. For example, an employer can only offer a health FSA if the employer also makes available group health plan coverage (such as the Medical Plan or health insurance) that meets the minimum value requirements of the ACA. Also, an employer may no longer use an HRA to reimburse an employee for premiums he or she has paid for an individual health insurance policy. (The employer can, however, use an HRA to reimburse an employee for dues contributions in a group medical plan, such as the dues share paid by an employee who has family coverage through the Medical Plan.)

The Board of Pensions offers resources, including web modules and sample plan documents, to offer guidance to employing organizations that wish to establish, and employees who would like to participate in, these plans. The Board's materials have been updated to address new ACA requirements.

See Booklets & Publications and Related Information at right for resources, including

  • a web module providing an overview of certain tax-advantaged plans (Tax-Advantaged Plans: Using Section 125 & 105 Plans To Increase Employee Take-Home Pay);
  • Employer Guide to Tax-Advantaged Plans;   
  • Healthcare Dues-Only Plan: Employee Enrollment and Salary Reduction Agreement;   
  • Sample Employee Dues-Share Only Plan Document for Presbyterian Church (U.S.A.) Employers;   
  • Sample Session Resolution;   
  • Sample Employee Dues Share with Health and Dependent Care Flexible Savings Arrangement Plan Document for PC(USA) Employers;   
  • Sample Health Reimbursement Arrangement Plan Document for PC(USA) Employers.   

Return to this section of pensions.org often for updated information and sample documentation.