IRS Plan Document & Testing Requirements for Pre-Tax Benefits

Do you currently deduct your employees’ portion of qualified health insurance premiums on a pre-tax basis? 

A Premium Conversion Plan, also known as a Premium Only Plan (POP) is a pre-tax plan defined via Section 125 of the IRS Code. If an employer is deducting insurance premiums from employee wages on a pre-tax basis, a written POP document must be in place. The POP document indicates that employees pay for their share of group health premiums with pre-tax dollars. POP plans, like other pre-tax plans, are required to complete annual non-discrimination testing to ensure the plan does not discriminate in favor of highly compensated employees.

If you do not currently have this important compliance document in place, Marshall & Sterling can help! Our Plan Document Preparation services include providing you with a custom Section 125 Plan Document so you have this available for any needed use: an IRS audit, the DOL requesting a copy, an employee asking to view the document, or for your own personal administrative guidance. As part of this service we also provide a POP non-discrimination testing workbook to run the required year-end testing.

For a brief overview on the “Who, What, & Hows” of Pre-Tax Benefit Deductions & Section 125 POP Plans, check out this episode from our “Compliance Minute” video series. Click here to download the slides from the video. 

Additional Non-Discrimination Tests: 
In addition to the required testing specific to POP plans, various other IRS nondiscrimination tests apply to health and welfare plans that include certain component benefits. For example, these tests include:

  • Code section 79(d) nondiscrimination rules for group term life insurance; 
  • Code section 105(h) rules for self-insured medical expense reimbursement plans, including health FSAs; and
  • Code section 129(d) nondiscrimination rules for dependent care FSAs

As always, please do not hesitate to reach out to our Group Benefits team with any questions.