For Your Business
- Provide benefit programs that improve employee satisfaction and promote retention
- Offer more robust benefits to attract prospective employees
- Stay ahead of changing regulatory and compliance issues
- Provide greater support on the day to day management of employee benefit plans
- Find ways to save the company money – containing costs without reductions to or elimination from benefits
While offering a single traditional medical plan and a 401(k) used to be all that you needed to attract talented employees, this is no longer the case. The typical American family has changed. Single employees, employees with families and young children, employees in the sandwich generation who are raising their children and caring for aging parents, and pre-retirees all have different needs based on their lifestyles. Employees now want multiple health plans to choose from to meet their families’ unique needs. They want better retirement plans, voluntary benefits, work/life balance, financial planning and wellness programs.
Employees generally have two main goals they seek to meet through employment; obtain financial security and meet the health care needs of their families. While salary is obviously an important component in meeting those needs, so are the retirement and insurance benefits that you provide. Although your goals and your employees’ goals may seem at odds, they do not have to be.
Employee Benefit Plans
- Health Insurance
- Group Dental & Vision Plans
- Group Life, AD&D & Dependent Life
- Long-Term & Short-Term Disability Plans
The one thing almost every employee wants and needs is health insurance. The most common plans are health maintenance organizations (HMOs), preferred provider organizations (PPOs), point of service (POS) and indemnity plans. Another option is a health savings account (HSA), which is a tax-free medical savings account that must be paired with a high deductible health insurance plan (HDHP).
Chosing the right plan for you and your employees is a complicated decision. The Patient Protection and Affordable Care Act, which was signed into law in March 2010, made significant changes to the health insurance industry. Many provisions are complex and not yet clearly defined by the federal government. Many more are subject to both state and federal rules and regulations that are still to be determined. Because of the changing requirements that employers must follow, many to be phased in from now until 2018, it makes sense to consult with a benefits professional who can guide you through the process.
Self-Funded vs. Insured:
All group medical benefit plans fall into one of two categories: self-funded or insured. The choice of one over the other should not be made arbitrarily. Each type carries its own set of administrative rules and legal constraints.
What is Self-Funding?
Under an insured health benefit plan, an insurance company assumes the financial and legal risk of loss in exchange for a fixed premium paid to the carrier by the employer. Employers with self-funded (or self-insured) plans retain the risk of paying for their employees’ health care themselves, either from a trust or directly from corporate funds.
The risk assumed in either situation is the chance that employees will become ill and require costly treatment. When employees have few claims and few expensive illnesses, the self-funded employer realizes an immediate positive impact on overall health care costs. Conversely, if the employee group has unfavorable claims experience, a self-funded employer would incur an immediate expense beyond what may have been expected. Insured plans have a more predictable cost for the year; however, large employee claims costs from one year can affect future premium amounts
Vision benefits are often overlooked in a typical benefits package, but they can be incredibly beneficial to employees. Offering your employees vision insurance can encourage necessary eye care and help supplement costs for vision needs. In addition, regular eye doctor visits can identify otherwise unknown medical problems, lowering cost and improving treatment when those problems are caught early on.
Although long-insulated from employers’ cost-cutting efforts because of their low price, the rising cost of health coverage is now affecting dental benefits, according to industry experts. Troubled by high rates of inflation in their medical plans, some employers are scaling back on dental benefits. This is not necessarily the best move for employers, as workers tend to see the value in solid dental care. Many people make a positive connection between overall good health and maintaining their oral health. In addition, those with dental benefits may have brighter view of their health and well-being in general. Dental benefits may seem like just another expense, but the risks of not providing dental benefits could be more costly-including significant medical expenses that could have been avoided and difficulty hiring premium talent due to a lacking benefits package.
Life Insurance- Employer-Sponsored Coverage
Employer-sponsored coverage can be offered in a variety of ways. Employers may offer a term policy, permanent coverage or both. Cost-sharing also varies, as some employers cover the full cost, some require employees to pay the full premium and others split the cost with employees.
A common scenario is an employer offering a group-term policy at no cost to the employee, with a coverage amount that is a multiple of annual salary (usually one to five times annual pay). Group-term policies often end when an employee leaves the organization (or dies), but employees may be able to convert it to a permanent policy or renew it upon leaving. This is generally an affordable plan for employers to offer, though it does not offer as much long-term value to employees as a permanent plan.
Many employers who offer such a group-term policy also offer additional voluntary coverage options, in which the employee pays the full cost but still realizes the benefit of group rates and payroll deductions. Additional coverages offered may include:
- Spouse/dependent life insurance (group-term policies only cover the employee)
- Supplemental term life insurance (to elect a higher amount than the employer offers)
- Supplemental permanent coverage (a whole, universal or variable life policy in addition to the term policy)
- Accidental death & dismemberment (AD&D) coverage
Long-term disability insurance (LTD):
LTD is a type of disability insurance coverage that pays employees a set percentage of their regular income after a specified waiting period. For example, if a worker is covered under short-term disability (STD) insurance as well, the LTD insurance would kick in once the STD policy is exhausted, typically after 3 to 6 months.
LTD insurance protects workers in the event they become disabled for a prolonged period prior to retirement. LTD policies are often offered through employers as part of a standard benefits package.
The length of LTD plans vary, some may be limited to a period between 2 and 10 years, while other plans continue paying out until age 65.
Short-Term Disability Insurance (STD):
STD is a type of disability insurance coverage that can help you remain financially stable should you become injured or ill and cannot work. Usually, STD coverage begins within one to 15 days of the event causing your disability. The coverage allows you to continue to receive pay at a fixed weekly amount or a set percentage of your income.
Studies show that employees are increasingly enthusiastic about voluntary coverage options that supplement their core benefits. Conveyed through employers, these value-added plans are paid for through 100 percent-employee-paid payroll deductions.
Since many employers find it difficult to provide employees with complete benefit packages, voluntary benefits are a way to add value to your employee benefits package without incurring additional costs.
Christ Taylor LLP can help you design a customized benefits package that gives your employees streamlined access to both traditional and nontraditional voluntary options.
Traditional Voluntary Benefits:
- Disability income
- Critical illness/dread disease such as heart attack, stroke, and cancer
- Supplemental health
- Long-term care
- Permanent care
Health Savings Account
A health savings account (HSA) is an account funded to help you save for future medical expenses. There are certain advantages to putting money into these accounts, including favorable tax treatment.
Who Can Have an HSA?
- Any adult can have an HSA if you:
- Have coverage under an HSA-qualified, high-deductible health plan (HDHP)
- Have no other first-dollar medical coverage (other types of insurance, such as specific injury or accident, disability, dental care, vision care, or long-term care, are permitted)
- Are not enrolled in Medicare Cannot be claimed as a dependent on someone else’s tax return
Contributions to your HSA can be made by you, your employer or both. However, the total contributions are limited annually. If you make a contribution, you can deduct the contributions (even if you do not itemize deductions) when completing your federal income tax return.
Pre-tax & Flexible Spending Accounts (Section 125 Plans)
A Section 125 plan may be established pursuant to rules found in the Internal Revenue Code Section 125. This IRC provision provides an exception to what is generally called the “constructive receipt doctrine.” Under the constructive receipt doctrine, offering an employee a choice between cash and an employee benefit requires that the amount that could have been received be included in the employee’s gross income. A Section 125 plan allows employers to provide their employees with a choice between cash and certain qualified benefits without adverse tax consequences. Without a Section 125 plan, employee contributions can only be made with after tax dollars.
The Three Basic Forms of Section 125 Plans are:
- Premium Only Plan
- Flexible Spending Accounts
- Full Cafeteria Plan
What is a Premium Only Plan?
The Premium Only Plan is the most basic type of Section 125 plan and the most popular. A Premium Only Plan allows employees to pay their portion of insurance premiums with pre-tax dollars, which in turn reduces both the employer’s and employees’ tax liability. Benefits that are typically offered within a Premium Only Plan include: health, dental, vision, accidental death and dismemberment and group term life insurance up to $50K.
What is a Flexible Spending Account?
Under IRC Section 125, employees may make pre-tax contributions to a Flexible Spending Account. An employee may seek reimbursement from the Flexible Spending Account for expenses paid for child care, health plan deductibles and eligible medical expenses not otherwise covered under a health plan. A Flexible Spending Account allows an employee to increase his or her spendable income while also reducing the employer’s tax liability.
What is a Full Cafeteria Plan?
Under a Full Cafeteria Plan, the employer makes a non-elective contribution for every eligible employee. The employees may spend the employer contribution to purchase any of the benefits offered within the Cafeteria Plan. In addition, the employee may contribute pre-tax dollars to purchase additional benefits beyond what he or she can purchase with the employer’s contribution.
With the exception of health insurance, retirement plans are the benefit employees desire most. The good news is that business owners have a variety of plan options from which to choose.
Most Retirement Plans Fall into One of Two Major Categories:
Defined Contribution Plans allow employers and employees to contribute a set amount or percentage of pay, and retirement benefits are based on the actual performance of the funds. These plans give employers the ability to control costs because the contribution is defined. The amount an employee can contribute is based on a percentage of their salary up to a maximum amount defined by law. Defined contribution plans can take many forms, including:
401(k) plans help employees save for retirement by allowing them to set aside a portion of their salary that is often matched in whole or in part by their employers. Employees can select where they want to invest their funds and they are not taxed on this income until withdrawals are made. Employers’ costs are a tax-deductible business expense. Sometimes employers elect to integrate the 401(k) plan with a discretionary profit-sharing plan that can increase the employer’s retirement contribution for employees.
This option is for employers with 100 employees or fewer who do not maintain any other retirement plan. It allows an employee to contribute a percentage of his or her salary up to a fixed maximum to an individual retirement account (IRA). The employer may also make contributions on a fixed or matching basis, which are tax deductible. SIMPLE plans are easy to set up, require minimal paperwork,and have low administrative costs. Plus, employees retain their SIMPLE account when they change jobs.
Created with the small business owner in mind, SEP’s allow employers to set up IRAs for themselves and their employees. The employer contributes a percentage to each employee’s salary each year, up to a fixed maximum, and those contributions are tax deductible. SEPs have low administrative costs, and can even be started by those who are self-employed. Since the business owner can decide how much to contribute each year, this type of plan is often the answer for businesses that my want to adjust their contributions based on the health of the business.
Commonly known as pension plans, require employers to pay a fixed annual amount to eligible employees, during their retirement years. These allow employers a high degree of tax savings, and in good times, favorable growth rates can reduce or eliminate the employer’s contribution. However, they can be costly to administer and may require higher contributions in times of poor or negative investment returns. For employees, they provide the greatest degree of retirement income certainty since they take on virtually no risk.