P.O.P. Premium Only Plan

Transcription

1 P.O.P. Premium Only Plan

2 The Premium Only Plan (P.O.P.) helps you and your employees save money with pre-tax premiums. Save money with P.O.P. The Premium Only Plan (P.O.P.) is an employee benefit program designed to take advantage of certain provisions of Section 125 of the Internal Revenue Code.The plan helps you and your employees save money by converting certain insurance premiums from an after-tax basis to a pre-tax basis. With a considerable portion of operating budgets going toward employee benefit costs, it seems logical to look for ways to moderate those costs. That s why businesses today view cost containment as an important part of their success. The Premium Only Plan (P.O.P.) offers a simple solution for containment of employee benefit costs. Through provisions of Section 125 of the Internal Revenue Code, we can help you establish the plan which will enable your employees to pay for their portion of eligible group insurance premiums with pre-tax dollars. Because these dollars are considered to be employer dollars for tax purposes, your company will save on taxes and other related employee expenses. And, because your employees will have reduced their taxable income by using the P.O.P. Plan, they will pay lower Income and Social Security taxes, thus increasing their take-home pay. Advantages for you and your employees The advantages of the plan are to save you and your employees money on taxes and other related employee expenses. To the employer: reduces payroll-related taxes; improves employee benefits cost control; lays groundwork for future shifting of premium increases to employees; and requires minimal investment to implement. To the employee: increases take-home pay; reduces Federal income tax; reduces Social Security tax; and reduces state tax (except for New Jersey) Affordability made easy Very affordable! In fact, it s free when you apply for P.O.P. in coordination with any Humana group medical plan. In addition, P.O.P. is free with any HumanaDental plan when enrolling 25 or more lives. If you apply for Humana specialty products without medical or dental, you have the option to purchase the P.O.P. plan for a small installation fee of $ and a $50 annual renewal. Please submit application and check payable to Humana. We re here to help you. If you ever have a question, problem, or concern with regard to the P.O.P. Plan, call the P.O.P. Information Hotline at

3 Here s how it works No matter how many people your company employs, you can take advantage of IRC Section 125 when you establish a P.O.P. Plan. And, when you change your payroll deduction by implementing the Plan, you ll save money! How much depends on the amount your employees now spend for eligible benefits.the example below shows a comparison of a sample company and the advantages of using pre-tax dollars under a P.O.P. Plan: Employer Savings Using Using After-Tax Pre-Tax Dollars Dollars Sample annual payroll $250,000 $250,000 Less employee premium contributions 0 30,000 Taxable payroll 250, ,000 FICA payroll taxes (currently 7.65%) 19,125 16,830 In our example P.O.P. saves the employer $2,295 annually! Use the worksheet below to calculate your estimated tax savings! Total monthly employee premium contribution $ Current Social Security tax rate (7.65%) x.0765 Monthly employer tax savings: $ Months x 12 Annual employer tax savings $ Employee Savings Employees can easily see that pre-tax dollars go further than after-tax dollars when paying IRS allowable insurance premiums. A married individual, earning $28,000 and paying $1,200 for medical premiums: After-Tax Pre-Tax Income $28,000 $28,000 Less medical premiums 0 1,200 Taxable income 28,000 26,800 Estimated income and Social Security taxes (28%) 7,840 7,504 Income after taxes 20,160 19,296 Less medical premiums 1,200 0 Take-home income $18,960 $19,296 The difference of $336 illustrates the advantage of paying insurance premiums with pre-tax dollars. Questions and Answers What is Section 125? Section 125 is part of the Internal Revenue Code that allows for cafeteria plans. It also gives some general guidelines for the operation of cafeteria plans. Is the P.O.P. Plan a cafeteria plan? Yes.The employees premium contributions for eligible group insurance plans can be deducted on a pre-tax basis, increasing employee take home pay and allowing the employer to exclude these contributions from most payroll taxes. What types of employers can establish a P.O.P. plan? P.O.P. can be established for any single employer or certain related employers, including members of a controlled group of corporations, members of a group of commonly controlled trades or businesses, or members of an affiliated service group. Is this plan available to employers with self-funded plans? Yes, this plan is available to our self-funded clients. Can an employer who has a cafeteria plan in place take this plan? If an employer already has a cafeteria plan in place, there would be no reason to take this plan. If an employer currently has a Section 125 pre-tax premium plan through another provider, can they convert to a P.O.P. plan? Yes. It is possible to amend and restate the existing plan to a P.O.P. Plan.The employer should indicate in the Section A of the application that they are applying for an amendment and restatement of an existing plan.the original plan effective date should be indicated, as well as other current plan provisions, such as plan year and eligibility.the employer may request the amendment and restatement date; however, the actual amendment and restatement date will be assigned by Ceridian Benefits Services, as administrators for the P.O.P. program, based on the date the P.O.P. application is processed. It is not necessary for the amendment and restatement date to coincide with the beginning of a plan year. What type of benefit plans can be included in a P.O.P. plan? In addition to the group medical plan, the following employer sponsored group plans can be included in a P.O.P. Plan: Dental/vision insurance Disability insurance Group term life insurance (up to $50,000 of coverage)

4 When can an employer begin this plan? The employer may make the plan effective at any time during the year. However, regulations require that all employees be notified of the plan and given an opportunity to elect whether or not they will participate prior to the plan s effective date. Additionally, the legal plan document must be adopted prior to the plan s effective date. For these reasons, an employer cannot begin the P.O.P. Plan until they have received the P.O.P. Installation Kit from the administrators of the program.the P.O.P. Plan Installation Kit will be forwarded directly to you after your application had been processed. If I terminate my coverage with Humana, will I still be enrolled in the P.O.P. plan? Yes, you will be contacted by Ceridian Benefits Services and given the opportunity to continue the P.O.P. plan. Should I take this plan if I pay 100% of all my employees premiums? No.Tax savings gained by the P.O.P. Plan are based on employee contributions to your group plans. If there are no employee contributions, there will be no tax savings to you or your employees. What is the plan effective date? An employer may request a P.O.P. Plan effective date which coincides with the beginning of the payroll period for which they would like to begin pre-tax premium deductions. However, in order to assure compliance with IRS regulations the actual plan effective date will be assigned by Ceridian Benefits Services, administrators for the P.O.P. Plan, based on the date the P.O.P. application is processed. Backdating of a P.O.P. Plan effective date will not be permitted. If your P.O.P. application is not processed in time to deliver the P.O.P. Installation Kit prior to your requested effective date, your plan will be assigned an effective date of the first of the following month. (For newly underwritten groups, your P.O.P. Plan application will not be processed until you have been approved by the Humana underwriting department.) What is the plan year? The plan year is the 12 month period of time that governs the plan s operation.you can determine the plan year when you apply for P.O.P. medical plan year and that anniversary date is four months from now, but I d like to take advantage of the P.O.P. plan now? Great. IRC Section 125 allows for short first plan years.you can start with a short four month plan year.then, begin your 12 month plan year on your medical plan year anniversary date. How do I define the eligibility requirements for the P.O.P. plan? Generally, the P.O.P. Plan eligibility requirements should be the same as the eligibility requirements for your group insurance plan. Employees will become eligible for the P.O.P. Plan on the first of the month following completion of these eligibility requirements. (Note:To avoid possible discrimination problems, the P.O.P. Plan can only be established with one set of eligibility requirements. If your group insurance plan has more than one waiting period, it is generally better to use the longer period as the waiting period for the P.O.P. Plan.) Which employees can participate in a P.O.P. plan? Any employee meeting the eligibility requirements you establish can participate. Certain individuals within the company, however, are prohibited from contributing to a P.O.P. Plan. These include sole proprietors, partners within a partnership, or owners of a S-corporation. Do all employees have to participate? No. Employees must be given the opportunity to choose whether or not to participate. (NOTE:The plan may be deemed discriminatory if only highly compensated or key employees participate in the plan.) How does the employee make this choice? All eligible employees must complete an election form. This form is included in the P.O.P. Installation Kit. What if an employee elects to participate and later changes his or her mind? Employee elections must be made prior to the plan effective date or the beginning of any plan year. Employee elections are binding for the full plan year unless the employee has a change in family status or a significant increase in cost or modification of coverage under an insurance benefit. Must the plan year coincide with my medical plan year or can it go with my fiscal year? The plan year can be any 12 month period. It can coincide with either your medical plan year, your fiscal year, or the calendar year. What if I want the plan to coincide with my group s

5 What is a change in family status? Examples of a change in family status currently include: Marriage or divorce Death of spouse or dependent Birth or adoption of a child Termination of spouse s employment Commencement of spouse s employment Change from part-time to full-time employment status (or vice versa) by either employee or spouse Unpaid leave of absence by either employee or spouse Significant change in health coverage of employee or spouse attributable to spouse s employment Moving from the service area of an HMO. Does Humana require a certain number of employees to participate in order to accept our application? No.There is no participation level required.we are certain, however, that your employees will want to take advantage of the tax savings, and the increase in take home pay. What happens if an employee does not have medical coverage with our plan? If an employee carries coverage with other eligible benefit plans, such as life, dental, or disability, and contributes premium towards them, these contributions may be included in the P.O.P. Plan. If the employee has no coverage whatsoever in any eligible benefit plan, there would be no reason for the employee to participate in the P.O.P. Plan. What happens when an employee terminates employment? When an employee terminates employment, participation in the P.O.P. Plan automatically ends. What payroll taxes can be reduced? There are several related payroll taxes which you can reduce by implementing a P.O.P. Plan.These include: Social Security taxes Federal unemployment taxes State unemployment taxes (in some states).you should contact your local State Unemployment office to confirm the procedures in your state. Since employees are saving Social Security taxes by participating in the plan, will Social Security benefit payments to them be reduced upon retirement? Yes, but the impact will most likely be minimal. What do I need to have or do in order to establish this plan? Once we process your completed application, you will receive a P.O.P. Plan Installation Kit. Everything you need to implement and administer the plan will be furnished in the Installation Kit. What about ongoing support and service? Call the P.O.P. Information Hotline at for answers to your questions or assistance in establishing or administering the plan. As an ongoing client, we will keep you advised of any changes in the law affecting the P.O.P. Plan Installation Kit or plan document, and provide you with required revisions to the P.O.P. Plan Installation Kit and document. Can Humana provide legal advice on other aspects of IRC Section 125? We cannot act as your legal counsel.we suggest that you consult with your attorney for legal advice. What if the IRS or Federal government passes a law that no longer allows cafeteria plans? This is not likely to happen in the foreseeable future. But, if it did, all the tax savings that you and your employees have realized up until that time will not be lost.we would advise to discontinue the P.O.P. Plan. What if the Federal government later places restrictions on employers who have implemented a P.O.P. plan? The Federal government has indicated that if it moves to either disallow or restrict cafeteria plans in any way, it will not impose penalties on any existing plans. It would only require that all plans comply with the new law or regulations as of a specific date.we would advise you of this and provide you with amendments required to bring the P.O.P. plan into compliance with new regulations. What will the savings be to my employees? This will depend upon each employee s premium contribution and annual salary. Each employee will save on Federal income taxes, State income taxes (except New Jersey), and Social Security taxes.

6 P.O.P. Installation Kit P.O.P. was designed for easy installation to produce immediate savings. Each Installation Kit includes the following information: Employee Announcement Letter: Communication of the plan is important, and this letter highlights plan benefits and tells employees how to participate. Election Form: All eligible employees must decide whether to participate prior to the plan effective date. Summary Plan Description: This notice answers common employee questions and fulfills disclosure requirements. Annual Election Notice: All employees must be given the chance to re-elect prior to the beginning of each new Plan Year. Payroll Adjustment Summary: Your current payroll system needs some slight modification so employee contributions for eligible group insurance premiums are converted from an after-tax basis to a pre-tax basis.this section provides detailed information on making payroll adjustments.you should discuss the payroll changes with your payroll department or service to make sure they can be accommodated. Reporting and Disclosure Requirements: As a fringe benefit plan, all P.O.P. Plans must file an annual IRS Form 5500 and Schedule F pursuant to IRC Section 6039D. Failure to file or late filing of the annual Form 5500 and Schedule F may subject you to a penalty of $25 per day, up to a maximum of $15,000. Information is provided within the P.O.P. Installation Kit to assist you in filing this report yourself or you can take advantage of the Form 5500 and Schedule F preparation service offered by Ceridian Benefits Services. The cost for this optional service is $75 per annual report. HUMANA WILL NOT provide the Form 5500 or Schedule F preparation service. Nondiscrimination Testing Procedures: Per IRC Section 125 regulations, all P.O.P. Plans must pass certain nondiscrimination tests to prevent the plan from discriminating in favor of key and/or highly compensated employees. General information is provided within the Kit to assist you in determining the status of your plan.you should test your plan at the beginning and end of each plan year, as well as any time employee participation changes significantly, to ensure that it is not discriminatory. Personalized Plan Document: IRC Section 125 requires detailed legal documentation for the establishment of a P.O.P. Plan.You are provided with a complete legal document and corporate board of director s resolution (if applicable). The P.O.P. Plan document should be adopted prior to your plan effective date. You and your employees can start enjoying the financial benefits offered by the P.O.P. Plan.Simply mail or fax the completed employer application to your local Humana Sales Office. How to complete the application Section A - General Information Complete name, business type, state and name of plan on the appropriate spaces. Type of Plan (check one): Check A new plan if your company currently is not participating in a Section 125 plan. Indicate the requested effective date (start date). Please note the actual plan effective date will be assigned by Ceridian Benefits Services, administrators for the P.O.P. Plan, based on the date the P.O.P. application is processed. Backdating of a P.O.P. Plan effective date WILL NOT be permitted.the P.O.P. Plan effective date may not coincide with the effective date of your insurance coverage through Humana. DO NOT START YOUR PRE-TAX DEDUCTIONS UNTIL YOU RECEIVE THE P.O.P. INSTALLATION KIT FROM CERIDIAN BENEFITS SERVICES. Check Amendment and Restatement if your company currently is participating in a Section 125 plan from another provider and wish to convert to the P.O.P. plan. Indicate the original effective date of the Section 125 plan currently in place and the requested amendment and restatement date. Section B - Definitions 1. First Day of Plan Year:The company must adopt a 12-month plan year. Usually coincides with renewal date of insurance plan, calendar year or company fiscal year. Last Day of Plan Year: Must be 12 months after first day of plan year. 2. Eligibility for New and Existing Employees: Indicate hours per week and days of service required for eligibility. Usually coincides with eligibility for insurance program. 3. Eligibility for Re-Hired Employees: Indicate required length of service for re-hired employees. Re-hired employees cannot enter the plan prior to the first day of the first plan year immediately following their termination. Complete SECTIONS C-D and send the application to your local Humana Sales Office.

7 P.O.P APPLICATION SECTION A - GENERAL INFORMATION This plan can be obtained in coordination with a Humana group plan. Group application is enclosed. Group has existing Humana plan. (Sales Office Use Only) Group Number: EHI Humana Employer Name (full legal name): Business Type: Corporation Proprietorship/Partnership/Other State (in which the employer is incorporated or domiciled): Name of Plan: (Example: ABC Company Premium Only Plan) Type of Plan (check one): A new plan - requested effective date: Note: P.O.P. applications must be received by Ceridian Benefits Services at least 10 business days prior to the requested effective date or amendment and restatement date. Please keep this in mind when requesting an effective date. An amendment and restatement of an existing Section 125 plan Original plan effective date: Requested amendment and effective date: (Actual effective date or amendment and restatement date will be the first day of the month following receipt of the P.O.P. Installation Kit, or requested date, if later. DO NOT start your pretax deductions until you receive the P.O.P. Installation Kit.) SECTION B - DEFINITIONS 1. First day of plan year: Last day of plan year (must be 12-month period): 2. An employee of the company regularly performing services at least hours per week shall become a participant on the first day of the month coincidental with or next following the date the employee completes days of consecutive employment. 3. Employees rehired after a period of termination will become eligible for the plan on the first day of the month coincidental with or next following the date the employee completes days of consecutive employment, provided such date is not earlier than the first day of the first plan year beginning after the employee s termination. SECTION C - ADMINISTRATION Plan Administrative Contact: Company Name: Street Address (No P.O. box) : City, State, Zip: Telephone ( ) Address: Signature: X Title: Date: SECTION D - AGENT/PRODUCER INFORMATION (Please Print) Agency name: Telephone: ( ) Producer name: Social Security #: Address: Address: Sales Office: Agent Signature: X SECTION E (For Sales Office use only) Date Received: Comments: PLEASE SEND OR FAX APPLICATION TO YOUR LOCAL SALES OFFICE. THEY WILL FORWARD TO CERIDIAN BENEFITS SERVICES WHEN APPROPRIATE. PLEASE CALL WITH ANY QUESTIONS.

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