Premium Only Plans – What You Need to Know
Types of insurance premiums that qualify under Premium Only Plans
| Group-term life (up to $50,000) |
| Health insurance |
| Dental insurance |
| Vision Insurance |
| Disability Insurance |
| Prescription |
| Accident |
Plan Sponsor Responsibilities
The Plan sponsor is responsible for establishing and administering the Plan.
In order to establish a premium only plan, a written plan document must be adopted prior to the start of the plan year, and the plan must be operated in accordance with the terms in the plan document. The plan document must specifically describe all of the benefits, eligibility requirements for participating in the plan, procedures for making elections, provide that all elections are irrevocable, state how employer contributions may be made under the plan, the maximum amount of elective contributions, the Plan year, and specify that only employees may participate in the plan. In addition, if the plan includes a flexible spending arrangement, the plan document must include provisions complying with the uniform coverage rule and the use-or-lose rule.
Premium only plans also require annual discrimination testing, which must be performed as of the last day of the plan year. Premium only plans must give each employee the same opportunity to elect qualified benefits, and highly compensated employees must not disproportionately elect qualified benefits. The discrimination testing is performed to ensure that these requirements are met every year.
If a premium only plan had 100 or more participants at the beginning of the plan year, then the plan may be required to file Form 5500. This is the only reporting requirement for premium only plans.
If the plan fails to operate according to its written plan document, does not have a written plan document or otherwise fails to operate in compliance with Section 125 of the Internal Revenue Code, then the plan is not considered to be a cafeteria plan under Section 125 and each employee’s contributions to the plan will become taxable to the employee. In addition, this could result in tax penalties to both the employer and the employees who participated in the plan.
NEED MORE INFORMATION?
If you need more information regarding this or any other topic affecting your retirement plan, visit our Withum ERISA Knowledge Corner online, follow us on Twitter at WSB_ERISA or contact us at [email protected] to arrange a free consultation today.
Author: Lisa Galinsky l [email protected]
The information contained herein is not necessarily all inclusive, does not constitute legal or any other advice, and should not be relied upon without first consulting with appropriate qualified professionals for your plan’s individual facts and circumstances.
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