#cafeteria plan document

Employee benefits are a vital part of any organization's compensation package. Among the tools available to streamline these benefits, a Section 125 Premium-Only Plan (POP) document is crucial for both employers and employees. Let's delve into what a Section 125 POP document is and why it's significant.

Eligible Benefits

A Section 125 POP document typically covers various employee benefits, such as health insurance premiums, dental and vision coverage, and contributions to flexible spending accounts (FSAs). By allocating pre-tax dollars to these benefits, employees can maximize their take-home pay and employer-provided benefits.

Tax Benefits for Employers

Employers also benefit from a Section 125 POP document. By offering this plan, they can save on payroll taxes, as contributions made by employees through the POP plan are not subject to federal income, Social Security, or Medicare taxes. This creates a win-win situation where both employees and employers enjoy financial advantages.

Ease of Administration

Section 125 POP plans are relatively easy to administer, and they can be a cost-effective way for employers to enhance their overall benefits package. By offering a POP document, employers can provide more competitive benefits without significantly increasing their administrative burdens.

Legal Compliance

To ensure the POP plan is compliant with federal regulations, it is essential to have a well-drafted Section 125 POP document. Employers should work with legal and benefits professionals to create and maintain the plan in accordance with IRS guidelines.

Employee Choice and Flexibility

Cafeteria Plan Document

An individual coverage health reimbursement arrangement (ICHRA), often known as an Individual Coverage HRA, is a tax-advantaged health benefit provided by a firm that reimburses employees for personal health care expenditures.

The ICHRA was announced in October 2018 through new rules from the Departments of the Labor, Treasury, and Health and Human Services, was completed in June 2019, and became effective on January 1, 2020. In this post, we'll define an ICHRA and describe how it works.

How does an ICHRA function?

The allowance is determined by the employer.

The company establishes a monthly amount of tax-free cash for workers to use on their own health insurance and many other healthcare expenditure under an ICHRA. There are no allowance caps, and employers may offer different allowance amounts to different classes of employees, such as: 

Full-time 

Part-time 

Seasonal 

Salaried

Hourly

Temporary employees working for a staffing firm 

Employees covered by a collective bargaining agreement 

Employees in a waiting period

Foreign employees who work abroad 

Employees in different locations based on rating areas

A combination of two or more of the above options

In general, Individual Coverage HRA allowances should be consistent across classes. Employers, on the other hand, can establish differences depending on the employee's age or family size.

Employees purchase healthcare:

 Employees use their own money to acquire healthcare goods and services that meet their particular requirements, including individual health insurance. IRS Publication 502 includes a comprehensive list of HRA-reimbursable costs.

Employees must provide documentation of their spending:

The documentation is reviewed by the company, and the employees are reimbursed. If the documentation is valid and the employee's cost is reimbursable, the employer will refund the employee up to the amount of their allowance. Both the company and its employees benefit from tax-free reimbursements.

There are two other factors to consider. First and foremost, employees and their families are only eligible for the ICHRA if they are covered by a valid individual health insurance policy. Second, the ICHRA imposes premium tax credit limitations. Employees who join in the ICHRA, for example, are no longer eligible for premium tax credits.

Conclusion