PREMIUM ONLY PLAN (POP) COMPLIANCE

A Premium Only Plan (POP) will cut payroll taxes for employees and employers, without cutting compensation, in fact it will increase take home pay. A Section 125 Premium Only Plan saves the employer and the employee money by reducing payroll taxes.

The POP works by making one simple adjustment in your payroll process. With a POP, the contributions an employee makes for insurance premiums for health, dental, disability and group term life insurance programs can be paid for pre-tax. The net result is that the employee saves at least 22% in Federal and FICA taxes. The employer also saves the 7.65% FICA / Medicare matching taxes.

Failure to properly disclose to eligible employees the rules and meet non-discrimination can result in disqualification of pretax benefits for both employees and employers. Penalties for not administering a POP plan in compliance with the law can vary depending on the nature and extent of the non-compliance. Here are some potential penalties and consequences:

• Loss of Tax Advantages: If a POP plan is not administered in compliance with the law, the tax advantages associated with the plan may be lost. This means that the pre-tax contributions made by employees may be considered taxable income, resulting in increased tax liability for both the employer and employees.

• Disqualification of the Plan: Non-compliance with the requirements of a POP plan may lead to the disqualification of the plan by the Internal Revenue Service (IRS). This could result in the loss of all tax benefits associated with the plan for both the employer and employees.

• Additional Taxes and Penalties: Failure to comply with the rules of a POP plan may trigger additional taxes and penalties. For example, if the plan fails the "nondiscrimination" requirements, where highly compensated employees disproportionately benefit from the plan, the employer may face excise taxes and penalties imposed by the IRS.

• Legal Liability and Lawsuits: Non-compliance with ERISA regulations, including the administration of a POP plan, may expose employers to legal liability. Employees or participants in the plan could file lawsuits against the employer for failing to fulfill their fiduciary duties or for not providing the benefits promised under the plan.

It is important for employers to understand and comply with the rules and regulations governing POP plans to avoid these penalties and ensure that the plan is properly administered. Consulting with legal and tax professionals who specialize in employee benefits such as ESG can help employers navigate the complexities of compliance and minimize the risk of penalties.