What is a POP plan?
A Premium Only Plan (POP) is an employee benefit plan that allows employees to use pre-tax dollars to pay their portion of eligible group health insurance premiums. POP Plans are often referred to as Section 125 Plans because they are permitted under Section 125 of the IRS’s Internal Revenue Code.
How does a POP plan save us money?
Because employees pay for eligible group health insurance premiums with pre-tax dollars, employers and employees realize the following savings:
- Employer savings: Reduced payroll taxes
- Employee savings: Reduced taxable income, thereby increasing take-home pay. Savings depend on each employee’s premium contribution and annual salary amount.
What type of benefit plans can be included in a POP plan?
- The following employer-sponsored group insurance plans can be included
- Medical
- Dental
- Vision
- Short-Term Disability (STD)
- Long-Term Disability (LTD)
- Health Savings Accounts (HSAs)
- Group Term Life (Up to $50,000 of coverage)
Can my employees make pre-tax contributions to their Health Savings Accounts (HSAs) with a POP plan?
Yes, the employer is able to deduct employee HSA contributions on a pre-tax basis through the POP plan.
Which types of employers can establish a POP plan?
A POP plan can be established for a single employer and other types of employers – members of a group of commonly controlled trades or businesses, or an affiliated service group.
Will an employer paying 100% of employees’ premiums benefit from offering a POP plan?
No, the tax savings accomplished by a POP plan are based on employee contributions to your group plans. Employers whose employees are making a 0% contribution will not gain any tax savings.
Which employees can participate in a POP plan?
Common law employees and leased employees, as described in IRC Section 414 (n), are eligible to participate.
Do all employees have to participate?
No, each eligible employee must be given the opportunity to participate or waive the POP plan benefit.
Who is not eligible to participate?
Partners in a Partnership, 2-percent shareholders of an S Corporation, and Sole-Proprietors are not eligible to participate.
What is POP Plan Nondiscrimination testing?
Each year, your POP Plan Third Party Administrator (TPA) will send the employer a series of nondiscrimination testing to complete. These tests ensure the plan remains in compliance with IRS rules. While these tests are not submitted to the
IRS, they are important for employers to complete because they alert employers of any problems with compliance so any concerns can be remedied.
What is needed to have a POP plan, exactly?
A POP Plan Third Party Administrator (TPA) will create an ERISA/IRS document for the employer to have on file which enables the employer to withhold premiums on a pre-tax basis for eligible employee-contributions toward employee benefits. This document keeps the employer in compliance with POP rules, unless there are changes to the employer’s POP plan, or if the employer does not pass nondiscrimination testing and fails to correct the noncompliance issue.
Are there any stipulations I should be aware of regarding POP Plans?
Yes. When employees fund benefit contributions on a pre- tax basis, their elections are generally “irrevocable” until the conclusion of the plan year. This means employees generally cannot revoke or change plan elections until Open Enrollment, per IRS rules. The exception to this rule is when
an employee experiences a qualifying event such as a change in marital status, change in number of dependents, change in employment (termination), etc.