PREMIUM CONVERSION PLAN
PLAN DOCUMENT
FOR EMPLOYEES OF THE STATE OF HAWAII
Administered by the
Department of
Human Resources
Development
Attachment #2
INTRODUCTION
The State of Hawaii’s ("State") Premium
Conversion Plan ("PCP" or "Plan")
provides an opportunity to most health
benefits plan participants to save some tax
dollars and make the most of their
paychecks. It is being offered pursuant to
HRS chapter 78, and within the meaning of
Section 125 of the Internal Revenue Code
of 1986 ("Code"), as amended, relating to
“cafeteria plans”.
To retain this benefit, the State must
administer the Plan in strict compliance
with the Hawaii PCP Administrative Rules
14-51 (“Rules”). It is important to read this
Plan Document thoroughly. Carefully weigh
the Plan’s effect on your social security
benefits. You may want to consult with a
tax advisor to help determine whether this
Plan will benefit you.
Please keep in mind that this is only a
summary of HRS chapter 14-51, “Premium
Conversion Plan”, and is not the complete
text. In all cases where a question arises,
the Rules will govern. The Rules may be
examined, or a copy may be obtained by
contacting:
Director of Human Resources
Development
PCP Administrator
235 S. Beretania St., 14
th
Floor
Honolulu, Hawaii 96813
Or, visit the DHRD website at:
http://dhrd.hawaii.gov/administrative-rules/
This Plan Document sets forth the
material features of the Plan in a question
and answer format.
1. WHAT ARE THE BENEFITS OF
THIS PLAN?
When you enroll in this Plan, your
income will be taxed after your health
benefits contributions are deducted, so
your take-home pay should be greater than
if you do not enroll.
2. WHO IS ELIGIBLE FOR THIS
PLAN?
You are eligible to participate in the Plan
if you are an employee of the State and
enrolled in any health benefits plan offered
through the Hawaii Employer-Union Health
Benefits Trust Fund ("EUTF") and your
payroll deductions are processed through
the Department of Accounting and General
Services.
3. HOW DOES THE PLAN WORK?
When you enroll in this Plan:
You authorize the State to reduce your
gross salary (before federal, State, and
social security taxes are calculated) by
the total amount of your health benefits
plan contributions; and
The result is that your take-home pay is
likely to increase since you will pay less
federal income, State income, and
FICA taxes.
Let’s look at a hypothetical example to
show how the Plan would increase the
take-home pay of an employee: this
employee earns a gross pay of $2,000.00
per semi-monthly pay period, is married,
claims zero exemptions, and enrolled in
two-party health plans requiring a total
employee contribution of $283.00 per
semi-monthly pay period:
In this example, take-home pay will be
$68.06 more per pay period, or $1633.44
more per year if this employee enrolled in
the PCP. (Calculations based on 2019
State and Federal Income Tax Withholding
Table).
Please note that the above example was
based on an employee who is married. If
you cover your domestic or civil union
partner under your health plan, there may
be other tax liabilities in connection with
your domestic or civil union partner's
coverage, such that the tax savings benefit
of enrolling in the PCP may be minimal.
Therefore, you may want to consult with a
tax advisor prior to enrolling in the Plan.
4. HOW AND WHEN CAN I ENROLL IN
THIS PLAN?
New Employees- If you are a new
employee, you may enroll in the Plan when
you become eligible to enroll in any of the
eligible health benefits plans. Normally, this
is within ninety (90) calendar days of the
date you were hired. If you do not enroll
during this 90-day eligibility period or you
elected not to enroll at the time you
completed your new hire paperwork, you
will not be able to enroll in the Plan until
the following Plan year, unless you are
permitted under the Rules to enroll.
Employees wishing to enroll in PCP,
shall make their selection in the “Plan
Selection” section of the EUTF’s EC-1 or
EC-1H (for HSTA VB members only)
enrollment form and submit it to your
Human Resources Office (HRO) designee
or the Department of Education- Employee
Benefits Unit (DOE-EBU) for those working
for the Department of Education.
Current Employees- If you are a current
employee and do not enroll before the Plan
year begins, you will have to wait until the
following Plan year to enroll. The only
exception to this rule occurs in the case
where you are permitted under the Rules
to change from an election of no health
benefits plan coverage to an election for
such coverage.
For example, if you previously did not
take medical coverage through the State
because you were covered under your
spouse’s medical plan, and your spouse
dies or loses his/her job, you would be
eligible to obtain medical coverage through
the State, and you would also be eligible to
enroll in the PCP. You must, however, file
the appropriate forms with your HRO
designee or DOE-EBU within ninety (90)
calendar days of the event giving rise to
your eligibility to enroll.
Open Enrollment-Employees may enroll,
make changes to, or cancel their existing
enrollment without experiencing a
qualifying change in status event during
this designated time period. Employees
wishing to enroll, change, or cancel their
PCP enrollment shall make their selection
in the “Plan Selection” section of the
EUTF’s EC-1 or EC-1H (for HSTA VB
members only) enrollment form and submit
it to their HRO designee or DOE-EBU no
later than the end of the Open Enrollment
period.
The Plan Year normally runs from July 1
to June 30 each year.
5. HOW CAN I CHANGE MY PCP
ELECTION?
Your PCP election will be automatically
renewed each Plan year. If you wish to
change your election, you can only do so
during a designated Open Enrollment
period. The only exception is if a change in
your status has occurred for which the
Rules permit a PCP election change, such
as, but not limited to:
❖ Your marriage, divorce, or marriage
annulment.
NOT enrolled in PCP
Gross Pay
$2,000
PCP Reduction
0
Gross Taxable
$2,000
Federal Tax withheld
$101.60
State Tax withheld
$88
FICA Tax withheld
$153
Health Insurance
$267
Vision Care
$3
Dental Insurance
$13
Other
$100
Take-home pay
$1274.40
Enrolled in PCP
Gross Pay
$2,000
PCP Reduction
$283
Gross Taxable
$1717
Federal Tax withheld
$73.30
State Tax withheld
$69.88
FICA Tax withheld
$131.36
Health Insurance
0
Vision Care
0
Dental Insurance
0
Other
$100
Take-home pay
$1342.46
❖ Birth, adoption, or placement for
adoption of a child or addition of a
foster child.
❖ Death of your spouse or dependent.
❖ Employment or loss of employment by
you, your spouse, or dependent.
❖ Start or return from an (authorized)
unpaid leave of absence.
❖ Loss of eligibility by you or your
spouse under a health benefits plan.
❖ Your last dependent child becoming
ineligible for coverage under your
health benefits plan.
To make a change, it must be consistent
with your change in status, and you must
file the appropriate PCP change forms with
your HRO designee or DOE-EBU within
ninety (90) calendar days of the date of
your qualified change in status. Approved
changes will take effect after your forms
are received, usually the following pay
period, if administratively possible. For a
complete list of IRS-qualifying change in
status events, see §14-51-24 of the PCP
Administrative Rules.
If, during the Plan year, premium rates
increase and there is a change in the
employee contributions, the PCP Plan
Administrator will make the appropriate
adjustments.
6. HOW CAN MY PCP BE
CANCELLED?
Generally, you cannot cancel your PCP
election during a Plan year unless you
transfer to a non-eligible employment
classification, you marry and obtain
coverage under your spouse’s plan, or
your spouse gets a new job and you
receive health benefits plan coverage
through the new employer’s plan. You
must submit the required cancellation
forms within ninety (90) calendar days of
your qualified change in status. Approved
cancellations shall become effective as
soon as administratively possible, on a
prospective (not retroactive) basis, after
your forms are received (e.g., next pay
period following receipt of your forms).
There may be other situations in which
cancellations can be allowed. However,
you must write to the PCP Plan
Administrator for prior written approval.
Otherwise, you must wait until the next
designated Open Enrollment period to
cancel your PCP election.
Your PCP election will be cancelled if
you should involuntarily lose eligibility for
the health benefits plan you selected, as
provided in the Rules.
7. CAN I LOSE MONEY UNDER THE
PCP?
Usually, you will not lose money by
enrolling in the PCP. However, if you
change/cancel your health benefits plan
coverage but your PCP change/
cancellation is not permissible under the
Rules, your PCP election will continue, and
your premium payments will be forfeited.
To ensure that your forfeitures are stopped
at the end of the Plan year (i.e., June 30
th
),
you must file the required PCP
change/cancellation forms during the next
Open Enrollment period.
Reminder: Mid-Plan year changes and
cancellations that are allowable take effect
on a prospective basis after you file the
required forms. The longer you take to file,
the more money (premium payments) you
are likely to lose. To avoid this, file in a
timely manner.
8. IF MY DOMESTIC OR CIVIL UNION
PARTNER IS COVERED UNDER MY
HEALTH PLAN, CAN I ENROLL IN
THE PCP?
If you cover your domestic or civil union
partner under your health plan and your
domestic or civil union partner meets the
definition of a "qualified dependent" under
Section 152 of the Code and qualifies as
your dependent for federal income tax
purposes, you may deduct the entire
premium contribution on a pre-tax basis.
Otherwise, the contribution amount for your
domestic or civil union partner shall be
done on an after-tax basis. You must
submit the PCP Domestic/Civil Union
Partnership Acknowledgement Form (PCP-
DP/CU), which can be obtained from your
HRO designee or DOE-EBU or the DHRD
website at http://dhrd.hawaii.gov.
For PCP enrollment changes, refer to
Q&A # 5.
9. WILL MY SOCIAL SECURITY
BENEFITS BE AFFECTED IF I
ENROLL IN THIS PLAN?
If you participate in the PCP, your Social
Security benefits may be slightly reduced
because your Social Security benefits and
taxes will be calculated on your reduced
salary amount.
10. WILL MY RETIREMENT PENSION
BE AFFECTED IF I ENROLL IN THIS
PLAN?
No, your retirement pension will not be
affected by your participation in the PCP.
11. WILL MY DEFERRED
COMPENSATION PLAN
CONTRIBUTIONS BE AFFECTED IF
I ENROLL IN THE PCP?
Participating in the PCP may affect your
deferred compensation plan contributions if
your contributions are based on a
percentage of your pay rather than a fixed
dollar amount.
12. WHAT HAPPENS IF I GO ON LEAVE
WITHOUT PAY?
While you are on an authorized leave
without pay ("LWOP"), out-of-pocket
employee contributions that you pay to
continue your health benefits plan
coverage cannot be applied for PCP
purposes. This is because these payments
are made outside of the State’s payroll
system and do not qualify for the tax
savings available under the Plan.
When you return from a LWOP, your
PCP election will automatically continue if
you continued your health benefits plan
coverage during your leave by making the
required out-of-pocket contributions.
If your health benefits coverage was
cancelled because you did not make the
required out-of-pocket contributions while
you were on a LWOP, your PCP election
will likewise be cancelled as of the same
effective date.
However, you will be permitted to re-
enroll in the PCP when you return to work,
provided you have filed the appropriate
PCP forms with your HRO designee or
DOE-EBU within ninety (90) calendar days
of your return.
13. WHAT APPEAL RIGHTS DO I
HAVE?
If your PCP change or cancellation
request is denied, you may file an appeal
by writing to the PCP Plan Administrator
within thirty-one (31) calendar days after
receiving notice of the denial. Your letter
must set forth all your reasons for
appealing the denial. (address under Q&A
# 14.)
The PCP Plan Administrator shall act
upon your appeal within sixty (60) calendar
days after either receipt of your request or
receipt of any additional materials
reasonably requested from you, whichever
occurs later.
You shall be provided a written notice of
the final decision on your appeal within one
hundred twenty (120) calendar days of the
date your appeal was filed.
The decision of the PCP Plan
Administrator shall be final and conclusive
upon all persons.
14. WHERE CAN I GET MORE
INFORMATION?
If you have additional questions, please
contact your HRO designee or DOE-EBU.
Written requests may be sent to:
Director of Human Resources
Development
PCP Administrator
235 S. Beretania St., 14
th
Floor
Honolulu, Hawaii 96813
*************************************************
This Plan Document can be made
available to individuals who have special
needs or who need auxiliary aids for
effective communication (i.e., large print
or audiotape), as required by the
Americans with Disabilities Act of 1990,
by contacting the DHRD Employee
Assistance Office at 587-1050.
Revised: January 2021
