If you are an employer in Nebraska who offers group health insurance to your employees, you may want to consider setting up a premium only plan (POP) to save money on taxes and enhance your benefits package. A POP is a type of cafeteria plan that allows employees to pay their share of health insurance premiums with pre-tax dollars, reducing their taxable income and increasing their take-home pay. A POP also lowers the employer’s payroll taxes, as the pre-tax contributions are not subject to Social Security and Medicare taxes.
However, setting up a POP is not as simple as deducting premiums from your employees’ paychecks. A POP is subject to certain rules and regulations under the Internal Revenue Code (IRC) Section 125 and the Employee Retirement Income Security Act (ERISA), which require you to create and maintain proper documentation for your plan. In this article, we will explain what documents you need to set up and administer a POP, and how Vesta Employee Benefit Solutions can help you with the process.
What documents do you need to set up a POP?
To establish and implement a POP, you need to adopt a written plan document and a summary plan description (SPD) before the effective date of the plan. These documents explain the rules and features of the plan, and are essential for complying with the IRC and ERISA requirements.
- Plan document: This is the legal contract that governs your POP, and includes details such as the name and type of the plan, the name and address of the plan sponsor and administrator, the eligibility and enrollment criteria, the benefits and contributions, the plan year, the amendment and termination procedures, and the nondiscrimination rules. The plan document should be signed by you or an authorized representative, and kept on file for at least six years after the plan year ends.
- Summary plan description (SPD): This is a simplified and concise version of the plan document that highlights the most important information that your employees need to know about the plan, such as the benefits and costs, the enrollment and termination options, the claims and appeals procedures, and the participants’ rights and obligations. The SPD should be written in a clear and understandable language, and distributed to all eligible employees within 90 days of becoming covered by the plan, or within 30 days of a request.
What documents do you need to maintain a POP?
To administer and monitor your POP, you need to keep and update certain records and reports for your plan, such as the salary reduction agreements, the nondiscrimination tests, the annual returns, and the summary annual reports. These documents are necessary for verifying the compliance and performance of your plan, and for reporting to the IRS, the DOL, and your employees.
- Salary reduction agreements: These are the forms that your employees fill out and sign to indicate their consent to participate in the POP and to authorize the amount of pre-tax salary to be withheld from their wages for health insurance premiums. You should collect and retain these forms for each plan year, and update them whenever there is a change in the employee’s status, coverage, or contribution.
- Nondiscrimination tests: These are the tests that you need to perform annually to ensure that your POP does not discriminate in favor of highly compensated or key employees, who are generally those who earn more than a certain threshold or own a certain percentage of the business. If your POP fails these tests, you may face tax penalties or lose the tax benefits of the plan. You should conduct and document these tests before the end of each plan year, and keep them on file for at least six years.
- Annual returns: These are the forms that you need to file electronically with the IRS and the DOL using the Form 5500 series, which is a set of forms that provide information about the financial condition, operations, compliance, and participants of your plan. Depending on the size and type of your plan, you may need to file a different version of the Form 5500, such as the Form 5500, the Form 5500-SF, or the Form 5500-EZ. You should file these forms by the last day of the seventh month after the end of your plan year, unless you request an extension.
- Summary annual reports (SARs): These are the reports that you need to provide to your employees to summarize the information contained in the Form 5500 series, such as the assets, liabilities, income, expenses, and benefits of your plan. The SARs should be written in a clear and understandable language, and distributed to all plan participants and beneficiaries within nine months after the end of your plan year, or two months after the due date of the Form 5500 series, if you obtained an extension.
How can Vesta help you with the POP Plan Set-Up & Documentation?
Creating and maintaining the proper documentation for your POP can be a challenging and time-consuming task, especially if you lack the expertise, resources, or tools to do it correctly. You may face difficulties in understanding the legal requirements, drafting and revising the documents, collecting and organizing the records, filing and distributing the reports, and avoiding and correcting errors. You may also face risks of noncompliance and penalties if you fail to create and maintain the documents on time, accurately, and completely.
That is why you need Vesta Employee Benefit Solutions, a leading provider of employee benefits solutions in Nebraska, with over 10 years of experience and expertise. Vesta can help you with the following services:
- Design, implement, and manage a POP that meets your specific needs and goals, and that complies with the IRC and ERISA requirements
- Create and update the plan document and the SPD for your POP, and ensure that they reflect the current plan design and provisions, and that they meet the legal standards and specifications
- Collect and retain the salary reduction agreements for your POP, and ensure that they are accurate, consistent, and compliant with the plan document and the SPD
- Conduct and document the nondiscrimination tests for your POP, and ensure that they meet the IRS criteria and thresholds, and that they are performed and recorded timely and correctly
- Prepare and file the annual returns for your POP using the Form 5500 series, and ensure that they provide the required information and data, and that they are submitted electronically and timely to the IRS and the DOL
- Prepare and distribute the SARs for your POP, and ensure that they summarize the information contained in the Form 5500 series, and that they are written and delivered clearly and timely to your employees
- Provide you with guidance and support on how to avoid and correct common errors, how to request and file an extension, and how to respond to inquiries or audits from the IRS, the DOL, or your employees
To learn more about Vesta and how they can help you with your POP Plan Set-Up & Documentation and other employee benefits needs, give them a call today. Vesta is ready to help you with your POP Plan Set-Up & Documentation and other employee benefits needs.