A bill to amend the Internal Revenue Code of 1986 to establish that employers may offer employees a choice among tax-favored employer contributions.

What it does

• •Creates a new tax code section (125A) allowing employers to offer 'qualified benefit options plans' where employees can choose how to allocate employer contributions among multiple tax-favored benefits without the choice itself being taxable income.
• •Defines 'qualified benefits' eligible for allocation under these plans, including retirement contributions (sections 402/403), health reimbursement arrangements and health savings accounts (sections 105/106), educational assistance (section 127), and other employer-provided benefits excluded from gross income.
• •Applies nondiscrimination rules similar to existing cafeteria plan rules (section 125) to prevent discrimination in favor of highly compensated employees or key employees, treating all qualified benefits in aggregate when evaluating eligibility and contribution limits.
• •Requires reporting and recordkeeping under existing section 6039D, specifying that employers must report which tax code section applies to each qualified benefit included in the plan.

Why it matters

• •Expands employee flexibility to customize employer benefit allocations across retirement savings, health accounts, and educational assistance without triggering immediate tax liability on the election itself.
• •Ensures nondiscrimination protections prevent these plans from becoming tools to disproportionately benefit higher-paid employees, requiring the same fairness standards as existing cafeteria plans.
• •Clarifies the tax treatment and regulatory framework for multi-benefit election plans, reducing ambiguity about when employees can be offered choices among tax-favored benefits.

Who is affected

• •Employers offering benefits packages, who gain the ability to structure plans allowing employee choice among multiple tax-favored benefit types.
• •Employees and former employees (including retirees) of participating employers, who may benefit from increased flexibility in allocating employer contributions to preferred benefit categories.
• •Highly compensated employees and key employees, who remain subject to nondiscrimination limits ensuring they do not receive disproportionate benefit election advantages.

What happens next

This bill was introduced in the Senate on November 10, 2026, read twice, and referred to the Committee on Finance; the amendments would apply to taxable years beginning after December 31, 2026, if enacted.