Establishing a POP

Why establish a Section 125 Cafeteria or POP plan?

The Section 125 Cafeteria, POP, plan has no limit on the contributions by either the employee or employer. It covers dependent care, transportation costs, and has no medical insurance restrictions. Money in the Section 125 plan may not be carried over to the next plan year.

What is involved in setting up a plan?

To set up a Premium Only Plan, you simply:

• Select an enrollment method
• Select the corresponding announcement letter
• Customize the announcement letter for your situation
• Distribute the announcement letters
• Collect forms as necessary depending on enrollment method
• Convert payroll deductions to tax-free
• Complete and execute a plan document within 90 days of the effective date

What is involved in managing a plan?

Managing a Premium Only Plan is very simple. In fact, once the plan is installed it requires almost no effort and may actually reduce your internal benefit administration costs. Here are some key considerations:

• Make sure the plan complies with nondiscrimination rules
• Collect and remit employer and employee premiums to vendors.
• Enroll newly eligible employees in Premium Only Plan when enrolling other benefits
• Permit benefit changes only when qualifying events occur
• Complete an IRS Form 5500 each year

What are the common plan mistakes?

• Inclusion of 2% or greater S corporation shareholders, partners or LLC members in a healthcare spending account or allowing them to pay insurance premiums pre-tax through payroll deductions.
• Not filing a 5500 annually for a Section 125 Premium Only Plan
• Allowing employees to make changes in their elections for a healthcare spending account outside of the change in status rules
• Not performing the proper nondiscrimination testing on a plan prior to the end of a plan year and prior to the start of a plan year
• Withholding money from an employee's last paycheck who terminate the health FSA with a negative balance
• Not providing each eligible employee with a copy of the summary plan description for the plan
• Not updating the plan document to comply with current regulations
• Refunding elections to employees who had money left in their account at the end of the year.