POP Employer FAQ

A premium only plan (POP) allows employers to deduct employees’ health plan premiums from their paychecks on a pre-tax basis. Also known as a Section 125 or cafeteria plan, a POP can apply to premiums for medical, dental, vision, life insurance, and pre-tax HSA contributions.

At EBC, we provide the following services as part of your POP:

• Provide the legal plan documents
  Note: The law requires employers to have a Plan Document to allow pre-tax payroll deductions for health plan premiums.
• Perform nondiscrimination testing near the end of the plan year.
• Provide ongoing administrative support for compliance, technical, and customer service needs, including plan changes.

As the employer, you are solely responsible for setting up pre-tax payroll payments and contributions. The POP simply makes these pre-tax payroll deductions compliant.

To legally continue deducting employee premiums or plan contributions on a pre-tax basis, your organization must have a POP in place. This includes maintaining a compliant legal Plan Document and being compliant with POP nondiscrimination rules.

Key benefits of a POP include:

• Payroll Tax Savings: Reduce your company’s FICA and FUTA tax liabilities by lowering employees’ taxable income.
• Income Tax Savings: Employees pay less in income taxes.
• Improved Employee Retention: Offering pre-tax benefits enhances your compensation package, helping attract and retain top talent.
• Cost-Effective Administration: POPs are relatively inexpensive to establish and maintain, especially when compared to the potential tax savings.
• Customizable Legal Documents: Tailored Section 125 Plan Documents ensure compliance and clearly outline plan terms, benefits, and administrative procedures.

The health plan premium payments and pre-tax payroll contributions made through a POP are exempt from federal and state* income and payroll taxes.

• Employers save approximately 7.65% because they do not have to pay Social Security and Medicare taxes on contributions made through the POP.
• Employees save approximately 30%,* making a $100 premium payment cost them about $70.

*This tax example is a broad approximation of tax liability. Further, your contributions may be subject to state income tax in some states. Your specific savings depend on your tax bracket. You should consult a tax advisor for help with your own situation. Current tax laws control all pre-tax payment and contribution matters and are subject to change.

Since POPs receive a tax-advantaged status, benefits provided under these plans must not excessively benefit highly compensated employees or other key individuals. Nondiscrimination testing uses plan information along with mathematical tests to determine whether these plans benefit a sufficient number of “rank and file” employees – i.e., those employees that are not considered highly compensated or key individuals. EBC performs this testing for POP clients.

EBC provides three key documents:

• Plan Document: This document meets all the legal requirements for employers to make pre-tax payroll deductions for health plan premiums.
• My Company Plan: This document is a customized summary of your specific plan details.
• Summary Plan Description (SPD): This document is a user-friendly explanation of the POP for employees.

It’s a best practice to distribute these documents to new employees once they become eligible or to all employees during open enrollment to help them understand their plan details. These documents can be found in your employer online account.

The POP operates on a plan year and renews annually (and it can renew on a different schedule than the medical plan). The primary contact listed for your benefit plan receives communications to facilitate maintenance and renewal of the plan. If you haven’t received these notifications and you believe you should be the contact for your organization, you can update the contacts listed on your plan using the Update Contacts Form.

A POP should be terminated when you have chosen to:

• Discontinue any pre-tax premiums or plan contributions.
• Contract with another vendor to provide legal plan documents, perform annual nondiscrimination testing, or if you choose to do this testing yourself.

If you wish to terminate your POP, you need to send us a written request and include the following information:

• A statement that you wish to terminate your POP.
• The effective termination date. Please make sure that you provide an end-of-month date.

Note: A 60-day notice is required to terminate the plan at no cost.

Please note that requests from a broker cannot be honored.