Pre-tax insurance deductions can save employers and employees money, but employers need a plan document authorizing the arrangement. Learn what a Premium-Only Plan (POP) document covers, when it is sufficient, and when benefits such as a health or dependent care FSA require a more comprehensive cafeteria plan document.
Many employers let employees pay their share of health insurance premiums with pre-tax dollars. This benefit lowers the income subject to federal income and payroll taxes, which results in tax savings for both the employee and the employer.
However, employers must have a plan document authorizing these pre-tax deductions, and many do not.
That’s where a Premium-Only Plan, or POP, comes in.
A POP is a type of cafeteria plan that allows employees to pay their share of certain insurance premiums with pre-tax dollars. The plan document identifies the eligible benefits and the rules that apply
A POP is narrower than a traditional cafeteria plan. It generally allows pre-tax treatment of employee contributions toward qualifying insurance premiums, such as medical, dental, and vision coverage. Employers use a POP plan document when they don’t offer other cafeteria plan benefits, such as a Health FSA or Dependent Care FSA.
Employers that allow employees to make pre-tax benefits elections need a cafeteria plan document authorizing pre-tax deductions. For some employers, that will be a traditional cafeteria plan document, which is usually provided by the company that administers your FSA. For other employers, a POP may be all they need.
For example, consider an employer that offers medical, dental, and vision coverage but no FSA. Employees pay part of the cost through payroll deductions taken before taxes are calculated. A POP is all that’s needed to document this arrangement. By contrast, an employer that offers a Healthcare FSA, Dependent Care FSA, or other cafeteria plan benefits will generally need the more detailed cafeteria plan document provided by their cafeteria plan administrator.
How employees pay for benefits also matters. If employee premiums are withheld after taxes and no FSA is offered, a POP plan document generally is not needed at all.
For HR, the key question is not simply whether employees contribute toward the cost of their benefits. It is whether employees are paying their share of premiums on a pre-tax basis. If they are, make sure you have a cafeteria plan or POP document that authorizes the arrangement. The Miller Group can help with either situation. Contact a member of your account team for additional information or assistance.
Strengthen your benefits and employee well-being strategy by reaching out to a trusted advisor at The Miller Group. Our team can help you review your employee resources, clarify benefits communication, and build a program that meets the needs of your workforce.
