What is a Section 125 “P.O.P” plan? Should a small business owner have one?
Honestly, with a name as catchy as “Section 125” how could you go wrong? It sounds a lot like a highly classified federal facility or something.
All kidding aside, as foreboding and excruciatingly boring and bureaucratic as the name sounds, it’s a good idea to set one up for your small business if you offer employee benefits. If you’re payroll deducting your employee’s portion of their premiums on a pre-tax basis, and you don’t have a Section 125 plan in place… you could find yourself in some hot water down the road. And it could get expensive too!
What is it? A P.O.P. (“Premium Only Plan”) plan allows employee contributions towards their group insurance premiums to be payroll deducted before taxes rather than after taxes. This results in the employee paying less in taxes. And who wouldn’t want that?
Why should you have one? Turns out, this also helps lower expenses for the employer, too, because the payroll itself has been lowered. A P.O.P. plan should result in a reduction in employer costs in such areas as FICA, Workers Compensation, Unemployment Insurance, and other payroll-based taxes and fees.
In light of all the new rules and regulations being imposed on small business, we are suggesting to all our accounts (and prospective accounts) that they either formally establish a pre-tax P.O.P. plan or consider reviewing and ‘redoing’ any plan they may currently have. (If you’ve already established a plan and are satisfied that it is in compliance with current regulations and changes, then there’s no need to do the paperwork again).
What does it cost? There is typically a one-time enrollment fee (the firm we work with charges $500) to establish your plan and ensure that it will remain in compliance with all current, and future changes in, federal rules and regulations. There may be a much smaller annual administration fee. We believe it’s money well spent, though.
What do I do now? If this is of interest to you, or if you have questions and would like to know more, please let us know. We can help you get this process started and get your Section 125 P.O.P. plan in place (even if you’re not a current client).
