The 5 line items in a Section 125 proposal
Source: BG Broker Curriculum
Pricing Your First Section 125 Proposal: What New Brokers Need to Know Before Sending a Quote
The first formal Section 125 proposal a new broker sends often determines whether they get a second meeting. Prospects scrutinize proposals carefully because they are making a commitment that compounds over years. A proposal that obscures pricing, fumbles the FICA math, or quotes fees without context loses deals that the discovery call already won.
This article covers what a Section 125 proposal includes, how to price each line item, what to disclose to the prospect, what to defer to your discovery call with David at Toves Financial Group, and the common pricing mistakes that cost new brokers their first deals.
The 5 Line Items in Every Section 125 Proposal
A clean proposal covers five things. The specific dollar amounts vary by carrier and by what the BG/Toves network has negotiated; the structure stays consistent.
1. Plan administrator fee
The fee that pays for the plan document, non-discrimination testing, employee enrollment materials, and ongoing administration. Two common structures:
- PEPM (per employee per month): A monthly fee per enrolled employee. Scales linearly with the workforce. Typically lower per-employee on larger groups due to volume discounts.
- Flat annual fee: A single annual amount regardless of headcount. Some carriers prefer this structure for stability.
The proposal should clearly state which structure and the all-in cost for the prospect’s specific headcount.
2. FICA savings calculation
The math, run on the prospect’s actual headcount. Three scenarios are useful:
- Current participation (estimated from what they have running today, if anything)
- 50 percent participation (the floor for a single-tier or under-marketed plan)
- 75 percent participation (the target for a multi-tier plan with proper enrollment)
For each scenario, calculate: enrolled employees x average contribution x 7.65 percent employer FICA = annual employer savings.
The 2026 IRS limits to anchor on: Health FSA $3,400, DCFSA $7,500, HSA $4,400 self-only, $8,750 family. Whichever account the workforce skews toward sets the contribution assumption.
3. Carrier and product details
Name the carrier, the specific Section 125 product, and the tier structure (single-tier or multi-tier). If multi-tier, describe how the tiers map to income bands.
This section is also where you discuss expected participation rates. Carriers in the BG/Toves network with multi-tier products typically deliver participation in the industry-typical higher-tier range (often 70 percent and up); the specifics get covered on David’s discovery call before you bring a proposal to a prospect.
4. Implementation timeline
Most Section 125 plans roll out in 30 to 90 days:
- Plan document drafting and review: 1 to 2 weeks
- Payroll integration setup: 2 to 4 weeks
- Employee enrollment kit production: 2 to 3 weeks
- Open enrollment communication: 2 to 4 weeks
- Plan effective date: typically the start of the next pay period or the next plan year
Walk the prospect through the timeline so they understand what they are committing to. Surprises during implementation cause clients to churn before year 1.
5. Compliance services included
List what the plan administrator covers:
- Written plan document (legally required for Section 125)
- Annual non-discrimination testing
- Plan document updates when IRS rules change
- W-2 reporting support
- Department of Labor / IRS audit support (if included)
- Section 125 amendment handling for plan changes
Owners care less about compliance until something breaks. Naming the compliance services explicitly heads off year-2 questions and signals professionalism.
How to Present Fee Versus Savings
The single most important pricing rule: never present the fee in isolation. Always present the fee against the savings.
Wrong: “Plan administration is $3,000 per year.”
Right: “Plan administration is $3,000 per year. At 75 percent participation on your 40-employee workforce - which means 30 employees in a Health FSA at the 2026 limit of $3,400, plus 10 employees in a Dependent Care FSA at the 2026 limit of $7,500 - you save $13,541 per year in employer FICA. The math: (30 x $3,400 x 7.65%) + (10 x $7,500 x 7.65%) = $7,803 + $5,738 = $13,541. Net annual benefit: $10,541. The plan pays for itself roughly 4 times over in year 1.”
The framing is the same number with completely different psychology. Brokers who quote fees alone lose deals; brokers who quote net benefit close them.
The Renewal-Math Bar
A useful rule for whether a deal is worth landing: net annual benefit (FICA savings minus admin fee) should be at least 1.5 to 2 times the admin fee. Below that ratio, the prospect’s math feels marginal and they will struggle to justify renewing at year 1.
A $3,000 fee with $4,500 in savings (1.5x ratio) is borderline. The prospect might land but is at risk of churning. A $3,000 fee with $10,000 in savings (3.3x ratio) is a durable deal. The prospect renews because the math feels obvious.
If the ratio is below 1.5x for a given prospect, the broker has three options:
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Drive participation higher. If the FICA savings come from low participation, the fix is enrollment communication. Adding a multi-tier product or improving enrollment materials lifts participation and the ratio.
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Walk away from the deal. Better to politely decline than to land a client who churns. The relationship survives; the deal does not.
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Pair with another product. Section 125 layered with group health, voluntary benefits, or HSA-as-retirement can produce composite ratios that justify the fee even when Section 125 alone does not.
The BG/Toves network has carrier-specific guidance on which deals tend to deliver durable ratios. Specifics on that get walked through in David’s discovery call.
What to Disclose About Commissions
State laws vary. Some states require commission disclosure on benefits proposals; others do not. New brokers should:
- Know their state’s specific rules before sending any proposal
- Disclose where required
- Be ready to answer the commission question honestly if asked, regardless of disclosure rules
The specifics of how broker commissions structure across the BG/Toves carrier network (PEPM components, flat-fee components, hybrid structures) get reviewed on David’s discovery call. The structure varies by carrier and by what BG/Toves has negotiated. Specifics are not appropriate to publish here, both because they vary case by case and because state disclosure rules differ.
What is safe to say in any proposal:
- “Broker compensation is included in the carrier’s plan administration fee structure.”
- “Compensation specifics are available upon request to comply with state disclosure rules.”
What to avoid:
- Quoting your commission percentage in the prospect-facing proposal unless your state requires it
- Comparing your commission to competitors’ commissions
- Promising future commission rebates or kickbacks
Common New-Broker Pricing Mistakes
Mistake 1: Quoting the fee without the savings context. Single biggest mistake. Always pair the fee with the math.
Mistake 2: Skipping the participation rate scenarios. A proposal with only one participation assumption tells the prospect you have not thought through the range. Show three scenarios.
Mistake 3: Underestimating the implementation timeline. Promising 14 days when it usually takes 60 sets up the client for frustration. Be honest about 30 to 90.
Mistake 4: Hiding the compliance services. Owners do not value compliance until something breaks; then they want to know exactly what was included. List the services explicitly.
Mistake 5: Sending the proposal without a walk-through. Email the proposal as a follow-up to a meeting where you walked the prospect through it line by line. Email-only proposals get filed and forgotten.
Mistake 6: Quoting your commission unsolicited. Unless your state requires it, the commission line creates more questions than it answers in the prospect’s mind.
What to Do Before Sending Your First Proposal
A 60-minute checklist:
- Confirm the prospect’s headcount, wage band, and workforce demographic mix (from your qualifying call and payroll register review)
- Calculate FICA savings for three participation scenarios using the IRS-anchored 2026 numbers
- Look up your state’s commission disclosure rule
- Format the proposal cleanly (1 to 2 pages, table for the line items, the FICA math prominently displayed)
- Schedule a walk-through meeting before sending the proposal as a PDF
- Have your renewal-math ratio calculated; if below 1.5x, decide whether to walk
For the carrier-specific specifics (what the BG/Toves network plan administrator fees actually are, which carriers deliver durable participation ratios, how state disclosure rules apply to specific contracts), schedule the 15-minute discovery call with David Toves at Toves Financial Group. He has run hundreds of proposals and will walk through the specifics for your situation. Free, no obligation.
Where to Go Next in the Curriculum
Pricing pairs naturally with:
- The 4 qualifying questions (determines whether the prospect is in the right size range)
- Reading a payroll register (provides the data for accurate FICA calculations)
- The Three-Bucket Pitch (the conversation that leads into the proposal)
- The 5 objections every prospect raises (handles the pricing objections that come up after sending)
Watch the full curriculum free at benefitsgenius.co/for/new-brokers/.
Related Articles
If this article was useful, here are three more from the BG broker library that build on the same skills:
For the full library: benefitsgenius.co/learn/for-brokers/
Disclaimer: This article is for educational purposes only and does not constitute tax, legal, benefits, or financial advice. Specific carrier fees, broker commission structures, and state disclosure rules vary. The BG/Toves network covers specifics on discovery calls. Consult a qualified benefits professional and a qualified attorney before structuring any Section 125 proposal.
