Premium Only Plan
Section 125 Premium Only Plans, often referred to as POP Plans, reduce income tax liabilities for employers and employees. This is because IRS Section 125 allows employees to pay their portion of medical insurance premiums and HSA contributions using pretax or tax-free dollars. Sterling provides employers with everything they need to establish a Section 125 POP Plan.
Sterling offers two types of POPs - Basic and Comprehensive. The Basic plan does not include nondiscrimination testing, but Sterling offers clients a nondiscrimination testing tool to use in completing the required process on their own. The Excel tool can be found on the POP forms page. There are two spreadsheets for different plan years. Be sure to choose the correct one for the year in which your plan began and follow the instructions on the Excel document. The employer group performing this test is responsible for entering data accurately and ensuring formulas are not altered. Sterling cannot guarantee that results gained from this tool are true and correct and is not liable in the event results prove otherwise at a future date.
With the Comprehensive plan, Sterling will conduct annual nondiscrimination testing for an additional fee.
Section 125 IRS Code allows employees to convert a taxable cash benefit (salary) into non-taxable benefits. Under a Section 125 program, employers may choose to pay for qualified benefit premiums before any taxes are deducted from employee paychecks. This is a great way to cost effectively enhance benefits packages.
Group Insurance Premiums That Qualify
If offered by the employer, the qualified group insurance premiums that can be paid with pre-tax dollars under a POP are listed below. HSA contributions can also be made pre-tax, so the combination of a POP Plan and HSA is very cost effective and beneficial to the employer and employee. Note that employee HSA contributions in 47 states can be made pre-tax when the employer has a Section 125 or POP document. However, in Alabama, California, and New Jersey, HSA contributions are still state taxable.
- Disability - if disability premiums are paid pre-tax, benefits received are subject to taxation. Therefore, it is typically preferential to apply taxes to the premiums.
- Employee Group Term Life (up to $ 50,000)
- Hospital Indemnity
Employee Savings Benefits
Employees can often realize 30 - 40% in tax savings because contributions to a POP are exempt from payroll taxes. The actual tax savings are on city, state, and federal income taxes, including Social Security and Medicare taxes on all money employees use to pay for their portion of insurance premiums. Under a Section 125 POP, employees take-home pay is increased which helps reduce the high cost of providing health coverage for family members.
Employer Savings Benefits
Employers also realize savings by offering a POP to employees. About 10% tax savings is a good estimate as a result of lower Social Security, Medicare, Federal and state unemployment and, worker's compensation taxes, depending on the state.
Who Can Participate in a POP Plan
Employees of regular corporations, S corporations, limited liability companies (LLCs), partnerships, sole proprietors, professional corporations, and not-for-profits can all reduce payroll taxes by establishing a Section 125 POP. While the Code prohibits a sole proprietor, partner, members of an LLC (in most cases), or individuals owning more than 2% of an S corporation from participating in the Section 125 POP, owners may still benefit from the savings on payroll taxes by sponsoring the plan for their employees.
Sign Up Now for Sterling POP Plan Service
POPs can be started any time during the year. Sterling will create the following documents in support of your POP and work with you on the details required to set up the plan with your employees:
- POP Plan document
- Adoption Agreement
- Summary Plan Description (SPD)
To initiate the process, a POP questionnaire needs to be completed and returned to Sterling via email: email@example.com, or fax: 877-517-4729. Find the form at the Forms & Documents section of this site. Payment must also be received by Sterling to finalize processing and setup of your POP plan. Checks made payable to Sterling Administration can be mailed to:
PO Box 71107
Oakland, CA 94612
If you already have a POP Plan that you started years ago, you can amend and restate the plan anytime. We simply need the original start date of your old plan so we can maintain the continuity back to the original start date. If your document was written before 2002, it needs to be updated right away due to the many changes in IRS Code since then.