Premium Conversion Plans

It lets eligible employees elect to pay their share of qualifying insurance premiums through pretax payroll deductions under a written Section 125 cafeteria plan.

Participation follows the written plan and tax rules. Sole proprietors, partners and S corporation shareholders owning more than 2% generally cannot participate as employees for this purpose. Ownership attribution rules can also affect family members.

The document establishes eligibility, benefits, elections and administration. Payroll deductions and day-to-day operations need to follow those terms. Contact us when the plan needs amendment or restatement.

Follow your enrollment materials and the plan’s election procedures. Midyear changes require an event permitted by the tax rules and the plan; the requested change must satisfy the applicable conditions.

Section 125 includes testing requirements concerning eligibility, contributions and benefits, and key employees. The tests and any available exceptions depend on the plan. We can help you identify the information needed.

The Section 125 arrangement itself generally does not require Form 5500. An underlying ERISA benefit plan may have a filing obligation unless an exemption applies. Review each underlying plan separately.