A Description
A premium only cafeteria plan allows employees to pay the premium for certain fringe benefits with pre-tax money. Since they currently pay these premiums with after-tax money, setting up a premium only plan will save them taxes, and allow them to keep more of the money they earn. In addition, the employer does not have to pay Social Security taxes on converted premiums.

Employee Responsibility
Each employee must complete Enrollment and Election forms at the start of each year. If they do not submit an election form in the year which they first become a participant, it will be assumed that they have elected to pay their premiums with after-tax dollars. If they elect to participate in the first year but do not submit an election form in subsequent years, it will be assumed that they have elected to continue all benefits initially elected in the preceding year. Why is this Plan being Implemented

The efforts of employees are an integral part of the success of any employer. This Plan is the result of continuing efforts to find ways to reward employees for their loyal service.

The Tax Savings
Choosing to be in the premium only cafeteria plan will change the way payroll checks will be calculated.

Instead of deducting medical insurance premiums after taxable income is calculated, premiums will be deducted from compensation as a reduction in taxable income. This will reduce your tax liability for:

• Federal Income Tax
• State Income Tax
• Social Security Tax

The effect on taxes is illustrated below:

Questions and Answers
Q. When is an employee eligible to join the POP plan?
A. Employees are eligible to participate in the Plan when they become eligible to participate in the insurance benefit plans sponsored by the employer.

Q. Who makes contributions to the Plan?
A. All contributions are made the employer. Employees will enter into a compensation reduction agreement with the employer reducing compensation by the amount of premiums. The money from the reduction is then used by the employer to pay the premiums.

Q. How much compensation can be redirected?
A. The amount of compensation that can be redirected is equal to the cost of each benefit. The amount will be adjusted automatically if there is a change in that cost.

Q. What is the deadline to elect the benefits?
A. Each election form should be completed and returned to the payroll department before the start of the Plan Year for which the compensation redirection agreement will apply.

Q. What happens if completed election form is not returned to the Payroll Department by the deadline?
A. If an election form is not submitted in the year which the employee first becomes a participant, it will be assumed that the employee has elected not to participate in the Plan.

Q. How does a Premium Only Cafeteria Plan Work?
A. If the employee elects benefits the first year, but does not submit an election form in subsequent years, it will be assumed that the employee has elected to continue all optional benefits that were elected in the preceding year.

Q. Can elections be changed or revoked during the Plan Year?
A. In general - no. However, there is an exception for a change in family status. If the employee experiences a change in family status, the employee will be permitted to change or revoke an election during a Plan Year. The revocation or new benefit election must be consistent with the change in family status.

Q. What happens to the elections if the employee is no longer eligible to participate in the Plan?
A. Elections make under this Plan will automatically terminate on the date the employee ceases to be a participant in the Plan.

Q. How will this Plan affect Social Security benefits?
A. Selection of tax-free benefits under the Plan will normally result in the employee and the employer making lower contributions to the federal Social Security system. This could reduce Social Security benefits. In addition, other benefits based on taxable compensation could be reduced, such as worker's compensation, unemployment, and certain fringe benefits.