Premium Offset Plan (POP)

1. What is a POP?

A Premium Offset Plan is a provision under the Internal Revenue Code Section 125 that enables employers to allow their employees to have certain premiums that they have to pay out of their paycheck, to be taken out before the employee pays tax. These premiums would be taken out before the Federal tax, FICA tax, and the State tax. The POP also allows the employers to save on the matching FICA that they would have had to contribute on this amount.

2. What Premiums Qualify?
  • Health
  • Prescription
  • Dental
  • Vision
  • Disability
  • Employee Group Term Life (up to $50,000)
  • Cancer
  • Medicare Supplement
  • Hospital Indemnity
  • Accident
3. Are There Legal Requirements to Having a POP?

Yes, a company must follow the regulations set forth by the Federal Government in order to establish and maintain a Section 125 POP. These requirements include:

  • Legal Documents
  • Corporate Resolution
  • 5500 Tax Filing
  • Summary Plan Descriptions (SPD'S)
  • Employee Enrollment
  • Discrimination Testing
4. How Much Will The Company Save?

It is rather simple to estimate how much a company will save be implementing a POP. In most cases, the tax savings for the employer well exceeds the cost to have such a plan.

Calculate The Company's Savings:

1. Add all the employees' total annual insurance premiums they pay: $ _________

2. Multiple by the FICA Savings: X      7.65%

3. Total Annual Employer Savings: $ _________