Employer FAQ Library • Section 125 • Section 105 • SIMERP
Employer Questions Answered Clearly
A structured FAQ page for employers reviewing Section 125 FICA savings, SIMERP plan design, compliance, audits, administration, and rollout. Start with the basics, then move into legal, operational, and advanced due-diligence questions.
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Basics & Definitions
These are the first questions most employers ask before they evaluate cost, compliance, or rollout.
A SIMERP (Self-Insured Medical Expense Reimbursement Plan) is an employer-funded benefit plan established under IRS Code §105 that reimburses employees for qualified medical expenses on a tax-free basis. Unlike traditional insurance, the employer self-insures the benefit and processes claims directly through a Third-Party Administrator (TPA). SIMERPs operate within Section 125 Cafeteria Plans to redirect FICA taxes into preventive healthcare benefits.
FSAs are employee-funded and usually come with use-it-or-lose-it rules. HRAs are employer-funded but are often tied to specific plan designs. HSAs require high-deductible health plan enrollment and have annual contribution limits. A SIMERP is employer-funded through the overall plan structure, does not rely on HSA-style contribution rules, and is designed to work alongside existing major medical coverage without replacing it.
In most cases, employers with 100 or more W-2 employees are where the economics become more meaningful and the savings are easier to model. Final fit depends on workforce mix, payroll structure, current benefit setup, and implementation goals, but that is usually the starting point for evaluation.
This structure is typically reviewed around W-2 payroll because the tax treatment and employer-sponsored election mechanics depend on payroll reporting and employer plan participation. Independent 1099 contractors are generally outside that framework, which is why employers usually evaluate the opportunity based on their W-2 population first.
Practical Questions
Savings & Employee Impact
Once employers understand the structure, they usually want to know how savings are created and what changes for employees.
The FICA savings formula works by moving a qualified amount from taxable W-2 wages into pre-tax plan treatment. One example used throughout the program is $300 per month per employee. That reduces payroll-tax exposure and can produce approximately $53.33 per month in employer savings when FICA and related tax reductions are included, or about $640 annually per employee. Actual savings depend on payroll size, employee count, and plan adoption.
The program is designed to sit alongside existing major medical coverage, not replace it. Employees keep their current providers, networks, and plan relationships. The added benefit structure is intended to expand access to preventive services while helping reduce certain claims pressure on the primary plan.
From the employee perspective, the biggest differences are usually plan enrollment, payroll-tax treatment, and access to added services. Existing core coverage stays in place, but employees can see improved paycheck efficiency and additional zero-copay or low-friction preventive-care access depending on the plan design offered through the program.
Due Diligence
Compliance & Legal Review
This section answers the questions decision-makers, CFOs, HR leaders, brokers, and advisors usually raise before approving rollout.
Yes. The program is built on established IRS tax code sections, primarily Section 125 for cafeteria plan rules and Section 105 for reimbursement-plan mechanics. The structure is presented as a documented employer benefit strategy, not a gray-area workaround, and is designed to follow formal plan documentation and administration standards.
The program structure is designed around qualified medical care expenses under IRC §213(d). Following the May 2023 IRS guidance update, the plan is positioned to operate within compliant employer-benefit and wellness-plan standards rather than as a fixed-indemnity shortcut. Supporting materials include current legal and tax review tied to Sections 105, 125, and 213(d).
The program is structured to align with ACA participation requirements by requiring qualifying health coverage for participation. In practice, that means it is reviewed as part of a broader employer-benefit design rather than treated as a replacement for compliant major medical coverage.
Yes. The program is reviewed and supported within an ERISA-aware framework that includes formal plan documents, summary materials, administrative records, and ongoing compliance support. That is part of why employers view it as a structured benefits program rather than a one-off tax tactic.
Risky workarounds usually depend on vague language, weak documentation, or tax positions that are hard to defend. This program is built around established code sections, defined plan mechanics, documented reimbursement rules, and professional administration. That difference in structure is what makes the employer review process materially different.
Audit history is one of the most common due-diligence questions employers ask. The program is presented with audit-response support, documented plan materials, actuarial and legal review, and administrative records precisely because employers want to know the structure has been built for scrutiny, not just sales messaging.
Employers are not expected to assemble the response alone. The plan is supported with documentation, plan materials, elections, and administrative records that can be used if questions arise from regulators, auditors, or internal review teams. That support is a major part of the value employers look for before they move forward.
Operations
Administration, Security & Rollout
These are the advanced operational questions employers usually ask right before implementation planning.
Yes. A TPA is important because claims processing, data handling, plan administration, reporting, and documentation are not things employers want to manage on their own. The TPA is the operational backbone that helps turn a tax-efficient plan design into something employers can actually implement with confidence.
Data security questions are central to employer diligence. The program is presented with SOC 2 Type II administrative security standards and HIPAA-aware handling for protected information. That matters because employers want to know payroll, identity, and benefit-related data are handled through processes built for privacy and audit review.
Timing depends on census data, payroll coordination, plan documentation, employee communication, and enrollment readiness. Many employers can move from review to launch within a matter of weeks once those items are aligned, but the real timeline depends on how quickly internal approvals and payroll coordination happen.
Still Have Questions?
Most employers use the FAQ page to get comfortable with the structure, then open the calculator to model savings for their own workforce.
What employer proof can look like
Built around the same questions FAQ readers ask next: does the structure fit larger W-2 teams, can current coverage stay in place, and what can leadership reasonably expect before rollout?
Live Savings
Live Savings Calculator
W-2 Employees
150
100
5,000
Annual Savings
$96,000
Monthly Savings
$8,000
Avg Employee Increase
+$150
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