Sect 125 POP Non-Discrimination Testing

[Guest jhcpa]

I was recently told the following about Section 125 Premium Only Plans (125 POP ).

I was informed by a payroll company that they do not even perform non-discrimination testing on 125 POP plans. The representative I spoke to, said that the IRS is essentially turning a blind eye towards the plans because there are very limited areas for abuse.

After doing some basic research on Section 125 Premium Only Plans, it seems that the IRC does in fact call for a form of modified testing when the plan is used only for group health benefits. I'm not an expert on 125 plans, nor do I wish to be.

I'd like to know if anyone has heard the same thing about non-discrimination testing for such plans. Do you know exactly what testing is needed? I read conflicting information on this as well.

Personally, I think it would be rather difficult for the IRS to determine, since there is no 5500 required for small 125 POP plans. I personally don't see them going out to look for this. However, I'm not ready to advise a client about them, based on what a salesman from a payroll company told me.

[QDROphile]

Noncompliance is not a problem if you don't get caught. It's not like the law of gravity. That is probably the prevailing approach, since most service providers don't seem to provide that service. I personally don't like to live that way. You may be able to determine if you comply by looking at plan design and some demographic information. Actual number crunching is not always necessary.

[leevena]

I agree wholeheartedly with the previous reply. There is no reason to expose any client to that kind of a risk. Part of the "confusion" is the source...a payroll rep. While there are many very good payroll reps in the country, they are not usually very knowledgeable about employee benefits. Payroll reps should stick to selling payroll and employee benefit reps are who you should speak with about this.