Healthcare costs continue to rise. According to cms.gov, Americans spent $13,493 per person on healthcare in 2022. Employers and employees continue to search for ways to reduce expenses and one popular way to accomplish this is Premium Only Plans (POP). POPs allow employees to pay for premiums with pre-tax dollars. Using pre-tax dollars to pay for premiums allows employees and employers to reduce their income tax liability, leading to increased take-home pay for employees. In order to reap the benefits and ensure compliance, it is critical that employers understand the documentation required and the penalties for not having a proper Premium Only Plan Document in place.
The documents needed for a compliant POP are :
- Premium Only Plan Document outlining eligibility criteria, employee contribution limits and procedures for making elections or changes.
- Summary Plan Description which must be shared with participants, informing them of their rights and benefits.
- Enrollment Forms which indicate participation by an employee as well as their contribution level.
- Salary Reduction Agreement allowing the employer to deduct premiums pre-tax.
The penalties for a non-compliant Premium Only Plan range from the loss of tax advantages, penalties and fines by the IRS, or an increased exposure to IRS Audits for the employer. To avoid non-compliance, employers are advised to work with a benefits administrator, legal experts, or consultants who specialize in POPs, as well as to conduct regular review, often annually, to ensure the plan remains aligned with current regulations.
Implementing a Premium Only Plan can offer tax-savings benefits for both employers and employees. Contact COBRA Allies at cobraallies.com to speak with our POP experts. We look forward to hearing from you and helping your company start saving money.
