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Section 125 Premium Only Plan – POP
Section 125 POP plans are governed by Section 125 of the IRS tax code. A Premium Only Plan (POP Plan) is also known as a Cafeteria Plan. Employees enrolled in the Section 125 premium-only plan (POP) plan can set aside insurance premiums and other funds pretax that you can use for certain qualified medical and child care expenses. Since more participants in the plan equate to more tax savings for the employer.
The plan may make benefits available to employees, their spouses and dependents. It may also include coverage of former employees but cannot exist primarily for them. It’s suggested that the employer contributes to each employee’s plan to promote increased participation by those not yet in the section 125 plan. We offer a way for you to control the cost of employee benefits and enjoy substantial savings. POP plans are governed by Section 125 of the IRS tax code.
Employers with a POP plan are required to have:
- A current Summary Plan Description (SPD) available to all plan participants
- A current POP Plan Document
Advantages of Having a POP Plan:
- The most significant advantage of a POP Document is its tax-advantaged status.
- When you pay for insurance through a Section 125 POP plan, the premiums are deducted from your paycheck on a pretax basis – that means they come out of your taxable income, reducing both your income tax and FICA taxes. It’s like getting an instant pay raise!
- Section 125 cafeteria plan allows an employee to reduce the gross income amount used to calculate Federal, Social Security, and some State taxes. This amounts to a savings of between 25% and 40% of every dollar they contribute to the plan.
- Remind your employer that he gets this benefit too – his matching share of FICA and Medicare are reduced, as are FUTA and possibly state unemployment taxes.
- Employers can increase their employees’ share of insurance premiums without negatively affecting their take-home pay.
- Employers need to ensure the rules outlined in the plan document and SPD are followed. Failure to administer a plan in accordance with the written terms of the plan and the Internal Revenue Code can result in the loss of the benefits’ pretax status.
New employees must receive a copy of their plan sponsor’s latest Summary Plan Description within 90 days after becoming covered by the plan. Plan sponsors are not required to file a POP Document with the Department of Labor (DOL), although they are required to provide it to DOL upon request.
Benefits offered under a Section 125 plan include:
- Accidental death and dismemberment;
Short- and long-term disability;
- Group-term life insurance (up to $50,000 in coverage);
- Health FSAs (to cover out-of-pocket medical expenses not covered by insurance);
- Dependent care FSAs; and
Health savings accounts (HSAs).
Premium Only Plan Document Services
Section 125 POP Services
We make it easy to file your Section 125 Documents
HR Service, Inc. is a leader in document preparation for Section 125 POP Cafeteria Plans, SPD Wraps, and Health Reimbursement Arrangements (HRAs) plan documents. You can rest assured your company is safe and compliant with the IRS when using our services.
What are the Late Fees and Penalties?
The maximum criminal penalties for ERISA include fines of up to $100,000 and possibly ten years in jail. Businesses charged with ERISA violations can face criminal fines of up to $500,000, in addition to any civil liability.
You could receive a penalty of $110 per day, per participant, for not distributing a Summary Plan Description (SPD) to participants within 30 days of it being requested.
If plan information is requested by the Department of Labor but not provided within 30 days, the DOL can also dole out penalties of $159 per day (but not to exceed $1,594 per request). Failing to provide a Summary of Benefits Coverage can result in a max penalty of $1,176