What does Paychex Charge for a Section 125 Premium Only Plan (POP)?

Paychex payroll clients have reported spending up to $40 a month for Section 125 Premium Only Plan (POP) administration. These clients were very excited to learn they could eliminate that $480 a year charge by purchasing and administering their own Section 125 POP for just a $99 one-time fee.

What is a Section 125 POP?

Internal Revenue Code Section 125 allows employees to avoid paying any payroll income tax (technically a voluntary salary reduction) on health insurance premium and supplemental insurance such as dental, vision, cancer, term life insurance, accident and disability premium. The employee saves up to 40% (depending on their tax bracket) and the employer saves the 7.65% matching FICA tax on every dollar diverted through the POP.  The IRS requires that the POP be in writing hence the need for a formal plan document and why Paychex can charge $480 a year for the service.  The good news is there’s a much more affordable way to comply with this IRS formal plan document requirement.

PayChex Charges $480 Every Year for Section 125 POP Administration

Paychex payroll clients have reported spending up to $40 a month for Section 125 Premium Only Plan (POP) administration.  These clients were very excited to learn they could eliminate that $480 a year by purchasing and administering their own Section 125 POP for just a $99 one-time fee.

When an employer cancels their Paychex Section 125 POP Administration they discover Paychex did very little to justify the $480 annually. To cancel the $480 employers simply inform Paychex they’ve amended and restated their Section 125 POP with Core Documents and will administer their Section 125 POP in-house.

Paychex will continue doing everything they did while charging $480 annually that includes setting up allowable Section 125 employee elections for qualifying premium as pre-tax (tax-free) as opposed to post-tax (taxable). This is a simple checkbox in the Paychex payroll software. An employee pre-tax election is technically a voluntary salary reduction so the funds will remain in the employer checking account until needed to pay insurance carrier invoices. This process is automated and standard across all software programs.

Paychex will also offer to perform Section 125 non-discrimination testing under certain circumstances for their clients who pay the $480. Core Documents provides all of their clients with non-discrimination testing forms. Any employer can conduct their own non-discrimination testing in just a few minutes every year.

Save $480 Annually and Conduct Your Own Non-Discrimination Testing

The IRS’s intent behind non-discrimination testing rules was to keep employers from designing a lot of tax-free benefits for a few highly compensated or key employees while leaving out all the lower paid employees.  As long as all employees have equal access and contribution levels discrimination will not be an issue. The fact is many groups are just too small for the IRS non-discrimination test formulas to work. In these cases the IRS would have to look at the facts and circumstances. Does the plan discriminate by design, or does the plan discriminate simply because there aren’t enough employees to make the formulas work.

About Core Documents, Inc.

For 25 years Core Documents has provided over 42,000 employers with everything they needed to establish  IRS-, Department of Labor-, and Affordable Care Act-compliant Section 125 benefit plan documents starting at just a $99 one-time fee*.

For just $50 more employers can choose the Deluxe Binder option that includes the PDF email version plus a printed plan document in a 3-ring binder (shipped via USPS).

For an optional $30 employers can add the HSA Module for additional 7.65% tax savings for the employee and the employer on HSA bank savings.

This is the most cost efficient way to comply with the Internal Revenue Code Section 125 requirement for a written plan document and the DOL requirement to provide employees with a Summary Plan Description. All included with your $99 package with election forms and a complete administration guide. You also have email, fax and toll-free telephone access to professionals whenever you have questions.

* The $99 base PDF cost reflects a one-time setup fee, not an annual charge. The document only needs to be updated for just $89 when IRS, DOL & ACA law changes or once every 5 years as required by the DOL. Core Documents notifies their clients when an update is required.