Section 125 Cafeteria Plan
Premium Only Plan (POP)
Employers may deduct the employee’s portion of the company-sponsored insurance premium directly from the said employee’s paycheck before taxes are deducted. A POP must be setup according to IRS guidelines in order for the company to withdraw premiums for medical, dental, or vision insurance pre-tax. The setup fee is typically $200, and renews at $100 per year.
In an FSA, employees may set aside on a pre-tax basis a pre-established amount of money per plan year. The employee can use the funds in the FSA to pay for eligible medical, dependent care, or transportation expenses.
Benefit to the Employer
Because an FSA Plan offers a tax-advantage, employers experience tax savings from reduced FICA, FUTA, SUTA, and Workers’ Compensation taxes on participating employees. These tax savings reduce or eliminate altogether the various costs associated with offering the plan. Meanwhile, employee satisfaction is heightened because participating employees experience a “raise” at no additional cost to the employer.
Increased participation equals greater tax savings to the employer. Thus, to promote participation in the plan, employers may wish to contribute to each employee’s FSA account.
Benefit to the Employee
An employee who participates in the FSA must place a certain dollar amount into the FSA each year. This election amount is automatically deducted from the employee’s check (for that amount divided by the number of payroll periods). A huge advantage for participants is the uniform coverage where the plan allows them to experience medical expenses at any time of the year with no worry about having the funds available at the time the expense is incurred. For example: If you have established your yearly contribution to be $1,200, and you incur a medical expense after 3 months (only contributing $300 so far) you can legally expend the full $1,200 assuming that your payroll contributions will continue as planned. Uniform coverage applies to the medical FSA only; it does not apply to a Dependent Care FSA.
The Department of Labor recently released their inflation-adjusted penalties for ERISA, the Family Medical Leave Act, and the Genetic Information Nondiscrimination Act.
With healthcare premiums continuously increasing year over year, many employers are searching for options to help reduce their benefit costs.
The Employee Retirement Income Security Act (ERISA) oversees group benefit plans, and with the onset of the Affordable Care Act, the ERISA Summary Plan Description (SPD) requirements are in the spotlight.