Protect Your Business from Costly Section 125 Compliance Failures

S125CP is a specialized insurance program that protects employers from the financial consequences of Section 125 Cafeteria Plan non-compliance.

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Built for Employers

Coverage designed specifically for businesses and their Section 125 plans.

IRS Compliance Risk Protection

Helps protect against costly IRS assessments and penalties.

Defense Costs Included

Covers professional fees and costs to defend your position.



What is S125CP?

S125CP protects employers when IRS audits uncover Section 125 cafeteria plan compliance issues. If the IRS assesses taxes, penalties, interest, or defense costs against your business, S125CP helps cover those financial exposures.

What It Covers

Employer FICA Taxes

Helps cover employer payroll taxes assessed by the IRS.

IRS Penalties

Helps cover IRS penalties related to plan failures.

Interest

Helps cover interest charged on underpaid amounts.

Audit Defense Costs

Helps cover professional fees and costs to defend your plan.

How It Works

IRS Audit

The IRS begins an examination of your Section 125 plan.

Compliance Issue Found

The IRS identifies a plan compliance failure.

Financial Assessment

The IRS issues taxes, penalties, interest, or defense costs against the employer.

Coverage Responds

S125CP helps cover eligible costs per the terms of the policy.



Why It Matters



S125CP vs E&O Insurance

  • Failed non-discrimination testing can disqualify your plan.
  • Missing plan document amendments create compliance gaps.
  • Improper mid-year election changes can trigger tax liability.
  • FSA administration errors can lead to costly consequences.

S125CP vs E&O Insurance

Coverage Aspect S125CP E&O Insurance
Who It Protects The Employer The Broker / Advisor
Coverage Focus IRS compliance risks of Section 125 plans Professional advice and services
Pays for IRS Taxes, Penalties, Interest Yes, if eligible under the policy No direct employer coverage
Defense Costs in IRS Examinations Yes, subject to policy terms Only if tied to an E&O claim
Who Is the Insured? The Employer The Broker / Advisor



What Is Not Covered

  • Premium recycling arrangements.
  • Known non-compliance or prior acts.
  • Fraud or intentional misconduct.
  • Employee individual tax consequences.
  • ACA penalties.

Questions & Answers

Frequently Asked Questions

Clear answers to the most common questions employers ask about S125CP.

What is S125CP? +
S125CP stands for Section 125 Cafeteria Plan Compliance Protection. It is a specialized insurance program designed to help protect employers from financial exposure when IRS compliance issues are found in their Section 125 Cafeteria Plan.
Who is insured under the policy? +
The insured is the employer that sponsors the Section 125 Cafeteria Plan. S125CP does not insure individual employees, brokers, consultants, TPAs, or insurance carriers.
Are employees covered? +
No. S125CP protects the employer’s financial exposure. It does not cover employees’ personal tax consequences or individual employee claims.
What triggers a claim? +
A claim is typically triggered when the IRS examines the employer’s Section 125 plan, identifies a compliance issue, and assesses a financial consequence such as taxes, penalties, interest, or eligible defense costs.
We’ve never had an IRS audit. Why do we need this? +
That is the point of insurance: it protects against a risk before it happens. Even employers acting in good faith can face unexpected IRS scrutiny, and a compliance issue can create significant financial exposure.
Our TPA handles this. Are we already covered? +
Not necessarily. A TPA may help administer the plan, but the employer remains responsible for Section 125 compliance. If the IRS assesses taxes or penalties, the bill is generally directed to the employer.
Is this the same as E&O insurance? +
No. E&O insurance protects the broker, consultant, or advisor. S125CP protects the employer directly when an IRS compliance issue creates eligible financial exposure.
What if we find a problem before the IRS does? +
S125CP is triggered by an IRS compliance action, not by internal discovery alone. If an employer finds an issue internally, the best step is usually to correct it before it becomes an IRS problem.
Does S125CP cover ACA penalties? +
No. S125CP is designed for Section 125 compliance risk, and certain Section 105 risks when applicable. ACA employer mandate penalties are a different exposure and are not covered by this program.
What is not covered? +
S125CP does not cover premium recycling, known non-compliance, intentional misconduct, fraud, employee-level tax consequences, ACA penalties, or non-IRS regulatory actions.

Coverage is subject to policy terms, conditions, limits, and exclusions.

Transfer Compliance Risk Before It Becomes a Financial Problem

Protect your business from eligible IRS Section 125 compliance-related financial exposure.

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Specialized Protection

Financial Peace of Mind

Focus on Your Business

Coverage is subject to policy terms, conditions, limits, and exclusions.