POP Plans: What Are They and Why Do They Need to Have a Separate Plan Document from the Wrap Plan Document?

A POP Plan for many is shrouded in mystery. To help bring clarity, we are outlining the key details below.

What Are POP Plans?

“POP Plans” stands for Premium Only Plans or are also known as Premium Conversion Plans and are under the Section 125 Cafeteria Plan umbrella. They are used strictly to cover the IRS provision of granting a portion of an employee’s compensation toward one or more non-taxable benefits* instead of receiving that amount in their paychecks as taxable compensation.

*   Medical, dental, vision, group term life, disability, or accidental death and dismemberment insurance

These plans are separate from the Flexible Benefit Plan. They are not under ERISA mandates.

Why Do They Need to Have a Separate Plan Document from the Wrap Plan Document?

ERISA plan documents and the Section 125 Cafeteria POP Document are two different types of plans with different purposes and regulations. ERISA plans are regulated by the DOL and Section 125 plans are regulated by the IRS. The ERISA attorneys we work with believe they should be maintained separately, especially since POP plans are not subject to ERISA.

In addition, Cafeteria plan documentation is required because it’s a funding mechanism that takes away tax money from the IRS, while ERISA plan documents are required to protect the benefits and rights of the participants.

Another point to remember is that ERISA and IRS definitions of eligible plan participants are different as cafeteria plans have stricter rules on dependents and owners vs. employees.

Until a legally sufficient cafeteria plan document is in place and the employee enrolled pursuant to its terms, premium conversion amounts will be taxable to the employee.

Note that Wrangle’s Wrap Plan Documents do include some information about the pre-tax contributions and mid-year election changes because those elements affect the benefits and rights of participants, but that’s not enough to meet the cafeteria plan document requirements under Code Section 125. In general, the Code Section 125 plan document should at least include the following provisions:

• A description of each of the benefits available through the plan, including the periods during which the benefits are provided (the periods of coverage)
• The plan’s rules governing participation, and specifically requiring that all participants in the plan be employees
• The procedures governing employee elections under the plan, including the period when elections may be made, the periods concerning which elections are effective, and providing that elections are irrevocable (outside of the permitted election change events)
• How employer contributions may be made under the plan (employee salary reduction election, employer non-elective contributions, flex credits, etc.)
• The maximum number of elective contributions (i.e., salary reduction) available to any employee through the plan
• The plan year of the cafeteria plan
• The special rules that apply to FSAs (e.g., use-it-or-lose-it rule, uniform coverage for health FSA)
• A description of the plan’s grace period or carryover period (if offered)
• If the plan offers PTO buying/selling (uncommon), special ordering rules apply

 If you have further questions on this subject: Feel free to reach out to ERISADESKInfo@ascensus.com. If you need to start a POP Plan Document project, contact Elaine Harvey, our Director of Sales, at eharvey@wrangle5500.com