POPs

The irrevocable election rule in POPs states that an employee’s decision to participate in the plan, and their chosen amount of salary reduction, generally cannot be changed or revoked during the plan year. This rule is intended to maintain the integrity of the pre-tax benefits. However, there are exceptions for…

In the context of POPs, a salary reduction agreement is an arrangement where an employee agrees to a reduction in their salary to pay for their portion of the health insurance premium on a pre-tax basis. This agreement is a key component of a POP, as it allows the employee’s…

Discrimination testing for a POP ensures that the plan does not favor highly compensated or key employees in terms of benefits. These tests are important because the IRS requires that POPs benefit a broad range of employees to maintain their tax-advantaged status. If a plan fails discrimination testing, highly compensated…

The eligibility of business owners to participate in a POP depends on the structure of the business. Owners of C Corporations can participate in a POP. However, owners of S Corporations, sole proprietors, partners in a partnership, and members of an LLC (in most cases) are generally not eligible to…

A Premium Only Plan (POP) is a section of the IRS Code Section 125 that allows employees to pay their health insurance premiums with pre-tax dollars. Essentially, it reduces an employee’s taxable income and thus lowers both the employee’s and the employer’s tax liabilities. POPs are used primarily to provide…