Section 125 premium only plans (POP) are a tax-free strategy designed to reduce the cost of healthcare for employers and employees. As POP effectiveness has steadily led to the success of sponsored healthcare plans nationwide, their popularity among business owners has grown. With the national eye zeroing in on sponsored health care as a national issue, State and Federal reforms have propagated the use of premium only plans through legislative promotions and requirements.
One such legislative mandate occurred in Connecticut four years ago. In 2007, Connecticut legislature passed a law requiring that all Connecticut employers sponsoring healthcare for their employees, as well as providing employees with tax-free deductions on their premium contributions, subscribe to an IRS provided section 125 premium only plan. Legislation enacted this requirement with the hope that POP plans would increase the accessibility of sponsored health insurance for employee's state wide.
Connecticut law is very particular on its compliance policies. Businesses are not distinguished by the number of individuals they employ and are required to maintain compliance to a POP if they provide any payroll deductions for their employees. Legislation also requires that business owners subscribing to a premium only plan perform annual nondiscrimination testing; this ensures that high wage earners and "key employees" do not acquire a disproportionate or unfair percentage of the POP plan tax savings.
The Section 125 premium only plan is a form of cafeteria plan; it allows businesses of all sizes and discipline to apply tax free dollars to their sponsored health insurance. When an employer subscribes to a POP they can deduct their employee premium contributions before regular State and Federal taxes are deducted. The process is as simple as it is efficient. Employees enjoy a massive take-home pay increase (a practically free raise averaging around $100-$300 nationally) and employers save 7.65% on their annual FICA taxes. Combined, the cost of sponsoring health care is generally reduced by 40%, employee satisfaction increases, and the ability to provide greater accessibility to sponsored health care (a looming requirement of the AHCA) is provided.
Any employer seeking to provide their employees payroll deductions must subscribe to a premium only plan first. Luckily, the process of acquiring and maintaining a POP plan is more than doable. Initially, correct paperwork and filing must be completed and all relevant POP plan information must be distributed to all qualifying employees. Anytime company information changes, the premium only plan documentation needs to be updated and annual nondiscrimination must be performed. It is strongly recommended that employers subscribing to a POP use a premium only plan service provider, as the penalties for falling out of compliance are fairly steep.
Connecticut employers are only except from required compliance to a POP if they do not provide any sponsored benefits or if they cover all costs associated with said benefits. Connecticut employers interested in providing their employees tax-free dollars while dramatically reducing the cost of sponsored healthcare should consider Taxfreepremiums as the premier POP plan service provider. They offer entirely online based services, provide automatic updates throughout the year to ensure compliance and provide freenondiscrimination testing software with every POP plan service.
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