3 Reasons Why You Should Review Your POP Document Today

It’s that time of year again: You are focused on open enrollment and building the best possible benefit programs. You may even be putting certain compliance solutions in place to help protect your benefits and comply with federal laws. But when was the last time you updated your Section 125 Premium Only Plan document (POP document)?

It’s fairly common for businesses to give little thought to their POP document once established. What’s more, employers sometimes struggle with establishing or adequately maintaining a POP document as part of their pre-tax benefit offering to employees.

In this article, we’ll review the three reasons why you should take a close look at your POP document compliance process (or initiate one, if currently not in place) as you prepare for the 2021 benefits year.

Reminder: Why do I need a POP document?

If you are asking yourself, “What is a Premium Only Plan document?” don’t panic; we’ve got you covered. Internal Revenue Service (IRS)-sanctioned Premium Only Plans were created by the Revenue Act of 1978 and are governed by Internal Revenue Code Section 125. Basically, employers who take their employees’ insurance premium contributions as pre-tax deductions through payroll are required to have a POP document on file. This plan document outlines your plan’s requirements in accordance with various laws, rules, and regulations and enables you to implement a pre-tax benefit—one that can result in significant tax savings for you and your employees.

Keep in mind: Your compliance with pre-tax health insurance deductions may be covered under a more comprehensive Section 125 plan document associated with other pre-tax benefit plans, such as a flexible spending account (FSA). Consult with your legal counsel or benefits advisor to determine the specific documents you need.

Reason 1: Benefits Plan Changes

Changes to your benefit plans can cause your POP documentation to be outdated and contain inaccurate information. Common plan updates, such as changes to your insurance carrier, contribution amounts, plan year effective date, and waiting periods, are just some of the reasons why you would need to update your POP document.

Reason 2: Legislative Updates

With constantly evolving legislation, rules, and regulations around benefit programs, it’s important for employers to periodically review their plan documents. In the midst of the COVID-19 pandemic, benefit programs have seen changes emerge from the CARES Act, as well as guidance from the U.S. Department of Labor and IRS. For instance, employers may now have the option to amend one or more of their Section 125 cafeteria plans, including the POP document, to allow employees to: make a new election for employer-sponsored health coverage if originally declined; enroll in a different level of employer-sponsored health care coverage; or elect out of such coverage.

Reason 3: Penalties

Failure to implement or maintain updated and accurate POP documents can result in heavy fines and penalties for employers. Penalties can include the potential for the pre-tax benefits deductions to be disallowed from the beginning of the plan inception, leading to an IRS assessment of overdue back taxes—plus interest and corresponding penalties. Depending on the severity of non-compliance, failure to have an updated POP document on file can be devastating for small and large businesses alike.

Don’t Wait—Update those POP docs today!

Employers may want to review their plan docs at least once a year to ensure they are up to date with current and applicable plan information. If you determine changes to your document are needed, you will want to ensure that it is compliantly communicated to all participants and beneficiaries, including those eligible through COBRA. If you haven’t reviewed your POP documentation this year, it certainly won’t hurt to check it out.

And when in doubt, speak with your broker or benefits advisor about any changes that have been made to your plan.

Whether you are just now implementing a Section 125 Premium Only Plan document or looking to update your existing one, ConnectYourCare can help bring your plan documents up to date and in compliance. Our suite of compliance products is designed to make implementing and managing your consumer-directed health care benefits requirements easy and affordable.