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This Web site contains a compilation of more than a thousand consumer finance  columns written by Tony Novak from the 1980s through 2006, updated and reformatted for maximum usefulness today.  New material was added after 2010.

Content is the opinion of the author and does not represent the position of any other person or entity. Information is from sources believed to be reliable but cannot be guaranteed.

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Premium Only Plan document

originally posted: 11/22/2006  reposted: 2/18/2011 This post has not been recently reviewed or revised by the author and may be out of date. If in doubt, please send a new question or ask for an update.

Q: A business has a POP and they think they do not need a Summary Plan Document. I realize they do need the document. Can you tell me where I can find that in writing. I looked all over the IRS and ERISA websites.

A: "POP" referrers to the words "premium only plan" that is typically a health insurance plan where employees pay part or all of the cost of the health insurance through salary deferrals. The cost of health insurance can be a tax-free benefit to employees if the plan meets the requirements spelled out in Section 125 of the Internal Revenue Code. This part of the tax law deals with situations where an employee can select cash wages (which are taxable) or a non-cash benefit (that is typically not taxed as wages). Obviously some record-keeping and documentation requirements are necessary to draw a distinction in the tax treatment between the two. One of those basic requirements is that the plan must be in writing. There is no requirement that the business use a "Summary Plan Document" nor are we aware of any common usage of this term in the employee benefits field. A Section 125 plan is typically composed of two documents: a "Plan Document" and a "Summary Plan Description". There is no requirement that a business use these two specific documents; this is simply a good business practice. It is conceivable that a valid Section 125-qualified health plan could be scribbled on a napkin. But considering that these benefit plan documents are available for free or at a very low cost, it does not make sense for a business to ignore them. Also keep in mind that there is no requirement for a written plan document in two specific situations: 1) if an employer is paying all of the cost of health insurance without requiring employee contributions 2) If the employer is counting the employee's portion of the premium as taxable wages and includes this amount as taxable earnings on the W2.


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