What Are Premium-Only Plans And Its Plan Sponsor Responsibilities?
Premium-only plans are governed by Section 125 of the Internal Revenue code, which allows payments made by an employee in a cafeteria plan to be excluded from their taxable income.
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 of the plan document. To get additional information on premium only plan compliance services navigate the internet.
The plan document must specifically describe all benefits, the eligibility requirements to participate in the plan, the procedures for conducting elections, stipulate that all elections are irrevocable, indicate how employer contributions can be made under the plan, the amount Elective Contribution Maximum, the Plan Year and specify that only employees can participate in the plan.
Also, if the plan includes a flexible spending arrangement, the plan document must include provisions that comply with the uniform coverage rule and the use or loss rule. Premium-only plans also require annual discrimination tests, which must be completed beginning on the last day of the plan year.
Premium-only plans must provide every employee with an equal opportunity to choose qualified benefits, and highly paid employees must not disproportionately choose qualified benefits.
The discrimination test is conducted to ensure that these requirements are met each year. If a premium-only plan had 100 or more participants at the beginning of the plan year, the plan may be required to submit Form 5500. This is the only reporting requirement for premium-only plans.