Premium Only Plan (“POP”)
The COBRA Act of 1986 allowed under IRC Section 125 for employees’ contributions towards group healthcare (including medical, dental, eye care and prescription plans), group term insurance, and group disability insurance. Basically, a Plan Document is required, the participation cannot discriminate in favor of highly compensated employees, and participation is limited to employees (thus excluding self-employed individuals, partners, and owners of 2% or more of an S-Corp).
Pre-tax dollars lowers the reported income taxes before calculating Federal, State, Local, FICA and Medicare taxes. These tax breaks are limited to payroll deductions made by an employee to their employer. Other contributions for healthcare coverage such as private insurance plans or COBRA payments (except for long-term care which was excluded in the 1996 HIPAA act) can be included in the Flex Plan Unreimbursed Healthcare Account.
Getting Started
The POP plan setup and enrollment is relatively simple unless the employer is establishing a policy for employees’ contribution towards group healthcare for the first time. A POP Plan is an ERISA Plan, so both a Plan Document and SPD are required. Usually, the enrollment process can be completed within two weeks. It involves working with the payroll to switch the after-tax deductions to pre-tax and employers and employers can use a confirmation letter to advise employees that their current payroll deductions will be changed to pre-tax.
| ADVANTAGES | DISADVANTAGES |
| + Employees get to use pre-tax dollars which partially offsets their out-of-pocket contributions are lower. | - Plan Document is required. |
| + Simple to implement and annual elections can be continued each year. | - Discrimination testing is required. |
For Pricing Illustrations, click here.
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