Section 125 Plans &
www.lynncom401K Plans


How Section 125 Premium Only Plan works:
Section 125 P.O.P. allows employee payroll deductions for most group health, dental, vision, and life insurance premiums to be taken before FICA/Med, SDI, federal and state income taxes. By participating, your employees can save approximately 25% of the amount they spend on these premiums.

Your company will save on its share of FICA/Med (7.05%) on the gross wages as well as the costs for Workers' Compensation Insurance premiums for this portion of their wages.

Sample Premium Only Plan Savings:
It an employee earns $2,000 per month and contributes a total of $185 per month for premiums, take-home pay may be increased as much as $480 annually. Company savings, based on the same example, would be $168 per year. An employer with 20 employees would save $3,360 annually.
Without
With
P.O.P.
P.O.P.
Salary
$2,000
$2,000
Pretax insurance premiums
0
185
Taxable Income
2,000
1,815
Federal/State Withholding (13.5%)
270
245
FICA/Med (7.65%)
153
139
State Disability Insurance (.5%)
10
9
After-tax insurance premiums
185
0
Net Income
$1,382
$1,422
Monthly employee savings
$40
Annual employee savings
$480
Annual company savings/employee
$168

When to Implement a Premium Only Plan:
It is cost effective for an employer to implement a Section 125 P.O.P. when the combined contributions of all employees toward insurance premiums totals $600 or more per month. At that level, the plan will break-even the first year, because the employer will save approximately that amount on payroll taxes, which will be sufficient to cover the plan administration fees.

The Section 125 Flexible Benefit Account expands the Section 125 P.O.P. plan in two significant areas by moving into pretax both unreimbursed medical and dependent care costs.

Benefit Illustration:
John Jones and his wife Susan both work and each earns $2,500/month. From John's check $125 per month is withheld for group health insurance. They also spend $300/month for childcare and $50/month for out-of-pocket medical costs, i.e. dental, eye care, orthodontia, co-pays and deductibles. John's net income comparison would be:

Without
With
Flexible
Flexible
Benefits
Benefits
Salary
$2,500
$2,500
Less pre-tax/elected
Flexible benefit amount
0
475
Taxable Income
2,500
2,050
Federal/State Withholding (13.5%)
338
273
FICA/Med (7.65%)
191
155
State Disability Insurance (.5%)
13
10
Less after-tax expenses for group
health premiums, childcare costs
and out-of-pocket medical expenses
475
0
John's Net Income
$1,483
$1,587
www.lynninsurance.com
John's savings would be $104.00 per month or $1,248.00 annually. Since John and Susan file their income tax return jointly, they may have additional savings due to a higher tax bracket.

Implementation of a Section 125 Plan can create a true win-win scenario for your company. With minimal employee participation, your company can offer a significant employee benefit that is paid for through reduced company payroll taxes and workers' compensation premiums.

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