Premium Only Plans

[Guest M58STEEL]

What are the compliance requirements for premium only plans? (i.e. 25% concentration test, discrimination test, etc.)

[papogi]

Even though a POP is the simplest form of 125 plan, it still has to follow all the same guidelines. Nondiscrimination tests (fair cross-section/eligibility) and key concentration tests will apply.

[Guest M58STEEL]

Please explain fair cross-section.

[papogi]

The fair cross-section test for eligibility says that the plan must be provided to at least some employees in each compensation segment over the entire compensation range, and can’t be provided to a disproportionate number of highly compensated employees. The test applies to 125 plans and dependent care assistance plans, among others. First, job classifications must be bona fide business classifications or job categories. Second, coverage ratios are determined. The point of the second part of the test is that if you have a high concentration of highly compensated employees, then you need a relatively higher participation rate by non highly compensated employees. Conversely, if you have a low concentration of highly compensated employees, then the participation rates by non highly compensated employees can be lower.