Compliance corner: 3 reasons why you should review your POP document today
Once it’s been established, it’s fairly common for businesses to give little thought to their POP document. Bad idea!
It’s that time of year again: You’ve been focused on open enrollment and building the best possible benefit programs. You may even be putting certain compliance solutions in place to help protect your benefits and comply with federal laws. But when was the last time you updated your Section 125 Premium Only Plan document (POP document)?
Once it’s been established, it’s fairly common for businesses to give little thought to their POP document. What’s more, employers sometimes struggle with establishing or adequately maintaining a POP document as part of their pre-tax benefit offering to employees.
Related: How to create a robust compliance program
In this article, we’ll review the three reasons why you should take a close look at your POP document compliance process (or initiate one, if currently not in place) as you prepare for the 2021 benefits year.
Reminder: Why do I need a POP document?
If you’re asking yourself, “What is a Premium Only Plan document?” don’t panic; we’ve got you covered. Internal Revenue Service (IRS)-sanctioned Premium Only Plans were created by the Revenue Act of 1978 and are governed by Internal Revenue Code Section 125. Basically, employers who take their employees’ insurance premium contributions as pre-tax deductions through payroll are required to have a POP document on file. This plan document outlines your plan’s requirements in accordance with various laws, rules, and regulations and enables you to implement a pre-tax benefit—one that can result in significant tax savings for you and your employees.
Keep in mind: Your compliance with pre-tax health insurance deductions may be covered under a more comprehensive Section 125 plan document associated with other pre-tax benefit plans, such as a flexible spending account (FSA). Consult with your legal counsel or benefits advisor to determine the specific documents you need.
Reason 1: Benefits plan changes
Changes to your benefit plans can cause your POP documentation to be outdated and contain inaccurate information. Common plan updates, such as changes to your insurance carrier, contribution amounts, plan year effective date, and waiting periods, are just some of the reasons why you would need to update your POP document.
Communicating these changes to your employees is paramount to keeping your plan compliant. In addition to updating your Premium Only Plan document, these changes should also be updated in your Summary Plan Description (SPD) or in a separate document called a Summary of Material Modifications (SMM) and distributed to your employees.
Additionally, you will need to update your Summary of Benefits and Coverage (SBC). The SBC is a template that uses clear language to summarize important features of the plan—including covered benefits, limitations of coverage, and cost-sharing provisions. The SBC should be included with all written application materials at renewal, upon special enrollment, and upon request to participants and beneficiaries. (See penalties for not providing participants with this important documentation below).
Reason 2: Legislative updates
With constantly evolving legislation, rules, and regulations around benefit programs, it’s important for employers to periodically review their plan documents. In the midst of the COVID-19 pandemic, benefit programs have seen changes emerge from the CARES Act, as well as guidance from the U.S. Department of Labor and IRS. For instance, employers may now have the option to amend one or more of their Section 125 cafeteria plans, including the POP document, to allow employees to: make a new election for employer-sponsored health coverage if originally declined; enroll in a different level of employer-sponsored health care coverage; or elect out of such coverage.
Reason 3: Penalties
Failure to implement or maintain updated and accurate documentation, including POP docs, can result in steep fines and penalties for employers—not to mention required changes to company policies and procedures if necessary. The Employee Benefits Security Administration (EBSA) enforces Department of Labor laws, including the Employee Retirement Income Security Act of 1974 (ERISA).
There are several factors when it comes to doling out penalties for ERISA violations, including the violation type and extent, as well as if the violation was intentional or not. It’s important to note that willful ERISA violations should not be taken lightly and can even result in criminal prosecution. The maximum criminal penalties for ERISA include fines of up to $100,000 and possibly 10 years in jail. Companies charged with ERISA violations can face criminal fines of up to $500,000, in addition to any civil liability.
When it comes to compliance documentation, you could receive a penalty of $110 per day, per participant, for not distributing a Summary Plan Description (SPD) to participants within 30 days of it being requested. If plan information (such as an SPD) is requested by the Department of Labor, but not provided within 30 days, the DOL can also dole out penalties of $159 per day (but not to exceed $1,594 per request). Failing to provide a Summary of Benefits Coverage can result in a max penalty of $1,176. – Note – updated based on 2020 adjustments
Specific to POP document non-compliance, penalties can also include the potential for the pre-tax benefits deductions to be disallowed from the beginning of the plan inception, leading to an IRS assessment of overdue back taxes—plus interest and corresponding penalties. Depending on the severity of non-compliance, failure to have an updated POP document on file can be devastating for small and large businesses alike.
A note on wrap documents and POP docs
Wrap documents can allow you to efficiently manage updates to your plan documents and ensure compliance with ERISA requirements,. Wrap documents combine all employer- required plan documents for ERISA-qualified benefit plans into one comprehensive document with the necessary language required to meet ERISA compliance guidelines. A Wrap document can cover your Premium Only Plan document requirements and include a combination of fully-insured and self-insured plans (or any variation of those), helping to simplify the compliance process for more complex benefit offerings. More importantly, only ONE summary plan description and ONE Form 5500 filing is required for all the plans that fall under the Wrap arrangement.
Don’t wait—Update those POP docs today!
Employers may want to review their plan docs at least once a year to ensure they are up to date with current and applicable plan information. If you determine changes to your document are needed, you will want to ensure that it is compliantly communicated to all participants and beneficiaries, including those eligible through COBRA. If you haven’t reviewed your POP documentation this year, it certainly won’t hurt to check it out.
When in doubt, speak with your broker or benefits advisor about any changes that have been made to your plan.
Whether you are just now implementing a Section 125 Premium Only Plan document or looking to update your existing one, ConnectYourCare can help bring your plan documents up to date and in compliance. Our suite of compliance products is designed to make implementing and managing your consumer-directed health care benefits requirements easy and affordable.
Patricia Driscoll is the Director of Product Marketing for ConnectYourCare, focused on consumer-driven health care solutions. She has over 20 years of experience marketing benefits and HR solutions within the small employer market, with a focus on benefits and HR technology. For more information, please visit: www.connectyourcare.com.
Disclaimer: ConnectYourCare does not provide tax or legal advice. This information is not intended and should not be taken as tax or legal advice. Any tax or legal information in this notice is merely a summary of ConnectYourCare’s understanding and interpretation of some of the current tax regulations and is not exhaustive. You should consult your tax advisor or legal counsel for advice and information concerning your particular situation before making any decisions.
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