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Home My WebLink AboutVII(C) Discussion Of Implementation Of IRS 125 Premium Only Plan Agenda 6-18-2002 Item VII C "CENTER OF GOOD LIVING-PRIDE OF WEST ORANGE" MAYOR•COMMISSIONER 04- 4°.# S.SCOTT VANDERGRIFT 4--s. CITY OF O C O E E COMMISSIONERS 150 N.LAxEsxoxEDRrvE DANNY HOWELL SCOTT ANDERSON OCOEE,FLORIDA 34761-2258 RUSTY JOHNSON • (407)905-3100 NANCY J.PARKER CITY MANAGER JIM GLEASON MEMORANDUM TO: The Honorable Mayor and Members of the Commission FROM: Fran Diedrich, Human Resources Director. DATE: June 18, 2002 SUBJECT: Implementation of IRS 125 Premium Only Plan The Human Resources Department is requesting to implement a Premium Only Plan in compliance with Internal Revenue Code (IRC) Section 125. IRC Section 125 provides for tax-exempt treatment of employee premium contributions to certain employer sponsored group benefit plans. The Premium Only Plan would enhance the City's benefits packages by reducing taxes paid by both the employer and the employee. Implementation of this plan would decrease the City's taxable payroll and reduce taxable income for employees who currently pay dependent coverage under the City's medical, dental and group term life insurance programs. The initial cost to implement this program is $400.00 including the plan document. Based on the benefits to both the City and it's employees, we would recommend approval of this request to implement the plan effective October 1, 2002. c. James Gleason, City Manager Wanda Horton, Finance Director Pow1g Protect Occea'E Water:Resources P.O.P. Helps Lower the Cost of Group Insurance Premium Only Plans(P.O.P.)offer a way for employers to enhance their employee benefit packages while reducing both employer and employee taxes. P.O.P. is an exciting concept in employee benefit programs created through certain provisions of Section 125 of the Internal Revenue Code. IRC Section 125 provides for tax-exempt treatment of employee premium contributions to certain employer sponsored group benefit plans.The type of nontaxable benefit plans which can be included in a P.O.P.plan are: • Medical/Health(indemnity,HMO,PPO,point-of-service) • Dental • Group Term Life(up to$50,000) • Vision • Disability(Short-and Long-term) IRC Section 125 considers P.O.P.pre-tax premium contribution dollars as employer dollars for tax purposes.As a result, your company's total taxable payroll is reduced by the amount of the employee premium contributions. A reduced payroll results in lower payroll-related taxes! The amount of savings depends on total company payroll and how much employees contribute toward their benefits,but any size company can implement P.O.P. and save money! The same kind of savings are available to every employee in your company who makes a contribution toward their insurance benefits. Because employees reduce their taxable income by the amount of their premium contributions,they pay less income and social security taxes and actually increase their take-home pay! The following charts illustrate two examples of the potential tax savings available with a P.O.P.plan. Assume the following: This"typical"company has an annual payroll of$175,000 and seven employees,each of whom contribute$100 a month toward group insurance premiums. EMPLOYER SAVINGS WITHOUT P.O.P. WITH P.O.P. Annual Payroll $175,000 $175,000 Employee Premiums $0 ($8,400) • Taxable Payroll $175,000• $166,600 FICA Tax(7.65%) $13,388 $12,745 EMPLOYER SAVINGS $0 $643 EMPLOYEE SAVINGS WITHOUT P.O.P. WITH P.O.P. Annual Income $25,000 $25,000 Pre-tax Contribution $0 ($1,200) Taxable Income $25,000 $23,800 Estimated Taxes(30%) ($7,500) ($7,140) After-tax Contribution ($1,200) $0 Net Take-home Pay $16,300 $16,660 TAKE-HOME PAY INCREASE $0 $360 Use this worksheet to calculate the estimated tax savings your company can achieve with P.O.P.! TAX SAVINGS WORKSHEET A)Total Monthly Employee Contributions $ B)Multiply Line A by.0765 X.0765 C)This is the monthly FICA tax savings $ D)Multiply Line C by 12 months X 12 ANNUAL EMPLOYER TAX SAVINGS $ P.O.P.Description P.O.P. was designed for easy installation to produce immediate savings. Each Installation Kit includes complete information for you to establish P.O.P.with any eligible employer sponsored group plan. The Installation Kit provides the basic information required to setup and administer P.O.P.,so there's no need to become an expert in IRC Section 125 plan administration. ■ Simple installation instructions in a step-by-step format • All the materials necessary to communicate the plan to employees including: • Employee announcement letter • Enrollment and re-enrollment forms • Summary plan description providing answers to common employee questions ■ Administrative guidelines and forms • Personalized plan document • Non-discrimination testing procedures Annual renewal is available for$100. This provides employers with timely updates and modifications to maintain compliance with changing IRS regulations. For a nominal fee,employers may choose to take advantage of our IRS Form 5500 reporting service. P.O.P. can be established for any single employer or certain"related employers,"including members of a controlled group of corporations, members of a group of commonly controlled trades or business, or members of an affiliated service group. Certain individuals, however, are prohibited from participating in a P.O'.P. plan. These include sole proprietors, partners within a partnership, or owners of an S corporation. Even though these individuals are ineligible for a P.O.P.plan,their employees can participate. Most importantly,we back our P.O.P.plan with our staff of technical representatives who are always ready to answer questions from you or your clients. For answers to your questions about P.O.P., call our P.O.P. INFORMATION HOTLINE, 1-800-767-4969. How to Start Saving with "P.O.P." A complete P.O.P.Installation Kit is available for$400. To begin receiving the financial benefits offered through P.O.P., simply complete the one-page application and submit with a check,made payable to Ceridian Benefits Services,for$400. (This fee is nonrefundable.) In order to ensure timely delivery of the P.O.P. Installation Kit, the completed P.O.P. application and check must be received by Ceridian Benefits Services, at least 10 business days prior to your P.O.P. Plan effective date. Applications received after that date will delay the effective date of the P.O.P.Plan by one month. The following information must be disclosed on the application: SECTION A: GENERAL INFORMATION 1) Plan Sponsor: Fill in complete legal name of the company(employer)sponsoring the plan. 2) Business Type: Indicate the form of business under which the plan sponsor operates. 3) State: Fill in the state in which the plan sponsor is incorporated. Non-corporate plan sponsors should indicate state in which the plan sponsor is domiciled. 4) Name of Plan: Identify complete name of the P.O.P.Plan. 5)Effective Date Of Plan: Indicate desired effective date. The effective date should be the beginning of the first payroll period for which employee premium contributions will be converted to pre-tax.It is not necessary for the effective date to coincide with the first day of the plan year(short plan years are permitted in the first plan year). Per IRS regulations,all employee communication/election information must be distributed and the plan document adopted prior to the effective date. SECTION B: DEFINITIONS 1) First Day Of Plan Year: The company must adopt a 12-month plan year. Usually coincides with renewal date of insurance plan, calendar year or company fiscal year. Last Day Of Plan Year: Must be 12 months after first day of plan year. 2) Eligibility For New and Existing Employees: Indicate days of service required for eligibility.Usually coincides with eligibility for insurance program. 3) Eligibility For Re-Hired Employees: Indicate required length of service for re-hired employees.Re-hired employees cannot enter the plan prior to the first day of the first plan year immediately following their termination. SECTION C: ADMINISTRATION Indicate name and address of person within your company responsible for plan administration. Application should be signed by an authorized representative of the plan sponsor. The P.O.P.Installation Kit and supporting documents are backed by Ceridian Benefits Services,Inc.,a firm specializing in the design and implementation of employee benefit programs. Please contact us at 1-800-767-4 969 with any questions. YOUR NEXT STEP . . . . . . Fill out the application on the next page. P.O.P. APPLICATION SECTION A: GENERAL INFORMATION 1. Plan Sponsor(legal name): City of Ocoee, Florida 2. Business Type(corporation,partnership,proprietorship): Municipal Government 3. State of Incorporation: Florida 4. Name of Plan: City of Ocoee Premium Only Plan (Example: ABC Company Premium Only Plan) 5. Type of Plan(check one): X a new plan effective as of: 1 0/01 /0 2 an amendment and restatement of an existing Section 125 plan. Original plan effective date: Amendment and restatement date: Note:P.O.P.application must be received by Ceridian at least 10 business days prior to requested effective date or amendment and restatement date. SECTION B: DEFINITIONS ' 1. First day of plan year:l 0/01. T ast day of plan year(must be 12-month period): 0 9/30 2. An employee of the company regularly performing services at least_¢0hours per week shall become a participant on the first day of the month coincidental with or next following the date the employee completes 3 0 days of consecutive employment. 3. Employees rehired after a period of termination will become eligible for the plan on the first day of the month coincidental with or next following the date the employee completes' 0 days of consecutive employment,provided such date is not earlier than the first day of the first plan year beginning after the employee's termination. SECTION C: ADMINISTRATION Plan Administrative Contact: Fran Diedrich Street Address: _ 1 90 N i,akPGhnrP Dri VP City,State,Zip: Occ)PP, FL 147h1 Signature: _E-mail Address:f d i e dr i c h@ c i.o c o e e. f l.us Title: Human ResonrcPs llr_ Telephone:(407) q05-31 00x1031Date:.06/01 /02 SECTION D: AGENT/BROKER INFORMATION Name: Company/Agency: Street Address(No P.O.Box): City,State,Zip: Telephone: ( ) Sales Office: Agent Signature: E-mail Address: Mail completed application(and check for$400.00)to: Ceridian Benefits Services Attn: Erik Cecil/Marketing 3201 34th Street South St.Petersburg,FL 33711