Does Your Business Need a POP Document?

Are you an employer who would like to allow their employees to pay health and other insurance premiums with pre-tax salary deductions?  Then yes, you definitely need a POP document.  What needs to go in this document?  Is it required?  Before looking at the answers to these questions, let’s understand POP a little better.

POP stands for “Premium-Only Plan”, or a Cafeteria Plan.  Despite its name, a Cafeteria Plan has absolutely nothing to do with lunchtime but is defined as a “written plan” under which all participants are employees and those participants may choose 2 or more benefits consisting of qualified benefits and cash.  The term “qualified benefits” here refers to those not included in the gross income of the employee, so tax-free.  These qualified benefits can include group health insurance, dental insurance, vision insurance, term life insurance, and accidental death insurance.

POP Plans are mutually beneficial to employers and their employees. These plans allow employees to voluntarily agree to a “salary reduction” so the employer pay their premiums and writes them off as a business expense.  The portion of the premium the employee is responsible for is deducted off the top before taxes are calculated which produces a savings anywhere from $.25-$.40 on every dollar paid in insurance premiums.  Employers’ payroll tax savings usually more than cover the costs associated with setting up and administering the plan. 

To set up a POP plan, an employer must be in accordance with ERISA and provide the employee with a Section 125 POP document, essentially a rulebook for the plan.  This document must contain the following:

A summary (SPD) of the POP document is also required.  The SPD must include clear language that all employees can understand.  IRS regulations clearly state that pre-tax contributions and savings cannot occur until the document and summary are distributed and signed by both employee and employer.

If you need help creating your Section 125 POP document, contact The Grigg Group!  

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