Premium Only Plan (POP)
Internal Revenue Code Section 125 permits employees to avoid taxation on insurance premiums they pay toward employer sponsored group medical, dental, vision care and term life insurance plans. The taxes they avoid are:
• Social Security
• Federal Income
• State Income (in most cases)
It is really very easy
You elect to sponsor a POP and your employees' insurance premiums are adjusted from an "after-tax" to a "pre-tax" basis.
NOTE: Because Social Security tax will not be deducted from the amount used to pay for qualifying insurance premiums, an employee's Social Security benefits may be slightly reduced.
Qualifying Premiums
Group medical, dental, vision, accident and/or disability insurance (IRC Section 106). Group term life insurance on up to $50,000 of coverage per employee.
Qualified premiums your employees pay for themselves, spouse and/or dependents.
Example of savings available
An employee earns $30,000 annually and currently contributes $200/month ($2,400/yr) from his paycheck to pay the premiums for his dependents under the company's group insurance plan.
Example - Without POP Plan
• Gross (taxable) Pay $30,000
• Taxes @ 25% ($7,500)
• Insurance Deduction ($2,400)
• Net Take Home $20,100
Example - With POP Plan
• Gross Pay $30,000
• Pre-Tax Insurance Deduction ($2,400)
• Taxable Pay $27,600
• Taxes @ 25% (6,900)
• Net Take Home $20,700
Your employee's take-home pay is increased by $600 per year ($50 per month) by participating in your POP Plan.
Will a POP Plan benefit your company?
Take the following POP QUIZ to find out:
1 Do your employees currently pay for any of their group Health, dental, vision or term life insurance via payroll deduction?
2 Are you deducting these contributions on a pre-tax basis?
If your answer to question 1 is YES and your answer to question 2 is NO, you and your employees can really benefit from a POP Plan. Calculate your Savings here.
My company has a POP plan. Should we consider this program?
- Do you have a written plan document in your files?
- Have you properly amended your plan for any changes made to the Plan Year, eligibility requirements, benefits or IRS regulations?*
- Have all of your employees received a copy of the Summary Plan Description?
- Is the total of all benefits for Key employees less than 25% of the total of all benefits in the plan?
- Do you require all election changes to be made only during the open enrollment period each year, unless a participant has had a valid change in status (as described in the latest Section 125 regulations)?
- Have you or your accountant filed Form 5500 for your plan with the IRS each year, if required?
If the answer to ANY of the above questions is NO, your plan may be out of compliance. You may want to consult with your tax professional and Century Benefits Consulting regarding your non-compliance risk.
Starting a new Cafeteria plan with Century Benefits Consulting, or converting an existing plan is easy. Contact us and find out how truly affordable it can be.
*changes in IRS regulations occurred in 1997,1999, 2000 and 2001