Products - Flexible Benefits Plan Employer

Enjoying More of Your Money This Year

Dealing with ever-increasing benefit costs rarely has been easy for employers or employees. Using our services, you will realize an increase in net revenue through decreased payroll expenses, specifically payroll taxes. Additionally, you will gain a powerful resource in managing those rising benefit costs. Not only will you benefit, but your participating employees will benefit as well.

They will realize an increase in disposable income and, depending on plan design, may be able to reimburse themselves with pre-tax money. We offer you expert supervision and administration of: insurance premium conversion plans; health care, dependent care and adoption assistance flexible spending accounts, and, health savings accounts.

What is a Flexible Benefits Plan?

Sometimes referred to as a Section 125 plan, a cafeteria plan or a flex plan, a Flexible Benefits Plan allows employees to set aside a certain amount of each paycheck into designated accounts before paying income taxes. During the year, employees are reimbursed from those accounts for out-of-pocket health care and dependent day care expenses. Reimbursement of qualified expenses is tax-free.

When employees use tax-free dollars to pay for those out-of-pocket expenses, they realize an increase in spending power and substantial tax savings. The company saves, too - 7.65% (FICA) on every dollar employees contribute to the plan.

What Benefits May Be Included in a Flexible Benefits Plan?

As the employer, you may include as few or as many of the following benefit components in a Flexible Benefit Plan:

• Employee-paid insurance premiums. Payroll-deducted health insurance plan premiums and premiums for other employer-sponsored insurance coverages including, but not limited to, dental, vision, disability, accident and group-term life. Plans also can be established for reimbursement of premiums paid for individually-owned insurance policies.

• Out-of-pocket medical expenses. Typical expenses include, but are not limited to, eye exams, eye glasses, contact lenses and solutions, dental visits, orthodontic care, medical examinations, mental health care, chiropractic services, prescription and over-the-counter medications, insurance co-pays and deductibles.

• Adult and child day care expenses. Typically, this includes the expense to care for a dependent while the employee and spouse (if married) work.

• Adoption expenses. Qualified adoption expenses include those fees and related expenses incurred for the adoption of a qualified child.

• Health Savings Account. Although this account generally is established with a bank or other institution, employee contributions may be passed through a plan on a pre-tax basis.

How Will I Benefit?

You will save 7.65% on every dollar your employees redirect to the Flexible Benefits Plan, as social security taxes will not be owed on amounts contributed by participating employees. Health insurance costs may be lowered by combining certain changes to your insurance plan with the installation of a Flexible Benefits Plan. You can increase your employees’ share of insurance premiums without reducing their take-home pay.

Insurance premiums based on employees’ taxable salaries may be reduced. Likewise, retirement plan expenses may be reduced, since profit sharing and pension plans may be based on taxable salaries.

Administrative costs are tax deductible. They may be paid by you, your employees or a combination of employer/employee dollars. Generally, however, administrative costs are paid by the employer.

Employer Savings Example (pdf 13 kb)

How Will My Employees Benefit

The portion of salary redirected by an employee to a Flexible Benefits Plan is free from federal income tax, state and local taxes (where applicable) and social security taxes (assuming the employee's salary is below the maximum social security wage base). The amount of savings depends on the amount redirected and the employee's tax rate.

The employee's redirected salary is "banked" in an account maintained for the employee. Qualified expenses incurred by the employee are reimbursed tax-free from dollars "banked" in the account.

If the full amount is not used by the employee before the end of the plan year (or, based on plan design, the end of the 2.5 month period following the end of the plan year), any remaining balance is forfeited to you. We make every effort to educate the employees on the risk of forfeiture and we recommend they be conservative in their estimate of eligible expenses. As a result, our experience indicates that forfeitures are minimal, if any.

Employee Savings Example (pdf 15 kb)

Who May Sponsor a Flexible Benefits Plan?

Regular corporations, partnerships, S-corporations, limited liability organizations (LLCs/LLPs), sole proprietors, professional corporations and non-profit organizations can all save money on taxes by establishing a Flexible Benefits Plan. While regulations prohibit a sole proprietor, partner, member of an LLC or a more-than-2% owner of an S-corporation from participating, they may sponsor a plan and benefit from the savings on payroll taxes. Employee-shareholders of regular C-corporations may participate.

How Easy is Starting and Maintaining a Flexible Benefits Plan?

Simply contact us through your health insurance representative, or directly with a Flexible Benefits Plan application, and we take care of the rest.

• Plan Consulting. Once we have been contacted by you or on your behalf, we will discuss the plan options available to you.

• Plan Installation. Our product includes signature-ready plan documents, as well as all forms and instructions necessary for plan installation. For existing plans, our service also includes a plan review and amendment, if necessary.

• Employee Enrollment Assistance. Our product includes employee brochures and enrollment forms. If requested, we will attend employee enrollment meetings. Confirmation of annual elections, claim forms and instructions for filing are provided for all participants.

• Employee Account Management. Employee contributions are collected by you. They may either be held by you in a separate account or sent to us each pay period. Services include account balance tracking, claims adjudication and claims payment by check or direct deposit on a weekly basis.

• Participant Assistance. Employees have 24/7 access to their accounts via the Internet. Employee statements are included on claim reimbursements and on demand.

• Annual Plan Compliance. Services include reconciliation and reporting of employee account balances, plus compliance with discrimination testing requirements and 24/7 access to plan data. Assistance with preparation of Form 5500 (if filing is required) will be provided.

How Can You Start a Flexible Benefits Plan?

You can start a Flexible Benefits Plan at any time. Plus, you can have a short first plan year so that future plan years coincide with your fiscal year, the calendar year or your health insurance year. The choice is yours.

As employee participation is vital to the success of the Flexible Benefits Plan, we recommend your plan be implemented no sooner than one (1) month after you have submitted the Flexible Benefits Plan application. We will help you educate and enroll your employees while you watch the savings multiply for you and your employees.

Flexible Benefits Plan Application (pdf 83 kb)

What Other Important Information Should I Know?

• The Flexible Benefits Plan must be in writing and a Summary Plan Description must be distributed to each plan participant.

• The plan may not discriminate in favor of highly compensated or key employees. Elections may not be changed or revoked at any time during a plan year unless the participant experiences a "change-in-family-status" event or the contributions required for the payment of elected benefit insurance premiums change during the plan year.

• You must make the entire health care flexible spending account election available to participants on the first day of the plan year. If a participant leaves employment before fully funding the plan, you must complete funding. In the event of a deficit in the plan account, you must fund this deficit until employee deposits cover the balance. Generally, FICA savings outweigh this risk.

• Each employee participating in the dependent care flexible spending account must be provided a written statement by January 31 of each year indicating the amount paid or expenses incurred for day care during the previous calendar year. Generally, this amount is shown on the employee’s W-2.

• If one hundred (100) or more of your employees participate in the Flexible Benefits Plan, you likely will be required to file an IRS Form 5500 each year.

• If COBRA applies to your plan, COBRA continuation forms should be provided to all terminating employees that participated in the health care flexible spending account component of the plan. However, COBRA need not be offered to those employees in subsequent plan years.

• If disability insurance premiums are paid on a pre-tax basis, benefits received from the insurance carrier by the employee may be taxable. Under most circumstances, it is recommended that disability insurance premiums not be included in the plan.

• No more than Fifty Thousand Dollars ($50,000) of employer-sponsored group term life insurance may be provided to employees on a pre-tax basis.

• Eligible expenses must be incurred during the plan year (or the 2.5 month extension, if permitted). Funds elected by participants, but unused, will be forfeited to you.

• Because employees do not pay any social security tax on income redirected to the plan, their social security benefits may be affected slightly.