From the December 2007 issue of Ceridian Connection

Implementing a Premium Only Plan (POP) at your business may be like putting money in the pockets of your employees at no additional cost to you. Second to the total amount of take home pay employees receive, health care coverage is one of the prime concerns of many people. One of the most competitive benefits you can offer is the tax-saving advantage of a POP. It allows your employees -- even if you have fewer than 50 -- to put aside pretax dollars for qualified employee health care contributions. This saves money for your employees and for your business.

How does a POP work?
Under POP, which is regulated by Section 125 of the Internal Revenue Code (IRC), your company's taxable payroll can be reduced by the amount employees contribute to certain employer-sponsored group benefit plans. Employers owe no payroll tax on qualified employee health care premium contributions, thereby lowering their FICA and other payroll-related taxes.

At the same time, pretax contributions lower the taxable income for employees, typically saving as much as 30 percent on the money they set aside for health insurance premiums. Employees design their package so they pay only for the benefits they really want, such as medical and health care, dental care, vision care, group term life insurance, and short- and long-term disability insurance. Their taxable income is reduced by the amount they contribute to these insurance premiums. They see it as increased take-home pay.

Experience tax savings
In many instances, the tax savings of a POP plan pays for itself. The following example shows how much a POP can save an employee who contributes $200 each month toward insurance premiums:

	Employee	Without POP	With POP
	Annual Salary	$25,000	$25,000
	Annual Pretax Contribution	$0	$2,400
	Taxable Income	$25,000	$22,600
	Estimated Taxes - 30%	$7,500	$6,780
	After-tax Contributions	$2,400	$0
	Net Take-home Pay	$15,100	$15,820
	Savings	$0	$720

Here's an example of how much a POP could potentially save an employer:

	Employer	Without POP	With POP
	Monthly Payroll	$175,000	$175,000
	Monthly Employee Pretax Contribution	$0	$16,800
	Taxable Payroll	$175,000	$158,200
	Total Payroll Taxes - 6.65%	$13,388	$12,100
	Monthly Savings	$0	$1,288
	Annual Savings	$0	$15,456

Since the amount of pretax savings changes proportionately with increases in health care premiums, POP savings can cushion the blow of future premium increases.

Ceridian POP solutions
Ceridian is a national leader in benefits administration. We have proven our expertise in the business of managing human resources and employee effectiveness. Together we can provide your employees with the coverage of a POP plan without the need for you to add administrative personnel.

You don't need to be an expert on IRC Section 125 plan administration. Each Ceridian Premium Only Plan Administrative Kit contains comprehensive employee educational and enrollment materials with simple step-by-step instructions and all the materials you need to effectively communicate the plan to your employees. It includes nondiscrimination testing information, self-calculating software and instructions for use.

When you need help, our technical representatives are just a phone call away, ready to answer your questions. Our team is dedicated not only to knowing the latest information about IRC Section 125 compliance, but to understanding how it affects your business and your employees.

The periodic newsletters we provide to our POP customers present timely information about legislative and administrative changes to the IRC Section 125 plan in a way you can understand. Updates with new tax indexes and regulatory changes are provided as needed for the Administrative Kits.

Contact your Ceridian representative to learn more about Ceridian's Pretax Benefits Administration services.