Presentation Transcript

1. CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAMRetirement Planning & Employee Benefits Session 16Employee Benefits: Group Life Insurance and Disability Taxation
2. Session Details
3. The Cost of Employee Benefits 2013 costs of employee benefits from Bureau of Labor Statistics:
4. Overview of Employee Benefit Plans Benefits that protect the employee’s earnings Health insurance Accidental death and dismemberment insurance Travel/travel accident insurance Dependent care assistance plans Cafeteria plans Educational assistance Group legal plans Executive perks Non-cash fringe benefits
5. Overview of Employee Benefit Plans Benefits that replace the employee’s earnings Group life insurance programs Group short-term disability Group long-term disability Workers’ compensation Social Security Qualified retirement plans Unemployment insurance Supplemental unemployment benefit plans Severance pay plans
6. Overview of Employee Benefit Plans Benefits that provide capital as part of the employee’s earnings Incentive stock options Nonqualified stock options Stock appreciation rights Junior stock plans Phantom stock plans Restricted stock plans
7. Group Life Insurance Requirements (Sec. 79) Characteristics of Policy Must provide a general death benefit Must be provided to a group of employees group equals all employees, or, if fewer a group based on age, marital status, or work-related factors such as duties performed, compensation, or length of service Coverage amount must be based on a uniform formula for all employees
8. Group Life Insurance Requirements (Sec. 79) Plan must meet one of four requirements: At least 70% of employees must benefit At least 85% of participants are not key employees Plan benefits a nondiscriminatory class of employees Plan complies with IRC §125 requirements if part of a cafeteria plan
9. Characteristics of Group Life Insurance
10. Group Life Insurance Coverage
11. Income Tax Implications of Group Term Life Insurance
12. Table I Rates
13. Table I Example John is 52. His company provides him $250,000 of group term life as part of his benefit package. The current annual tax impact of this benefit on John is as follows:
14. COBRA Qualifying Events
15. Flexible Spending Arrangements (FSAs) A cafeteria plan funded only with employee deferrals is called a flexible spending arrangement, or FSA – no FICA! In a flexible spending arrangement, the employee commits a dollar amount of salary reduction for the coming year. The employee’s salary will be reduced by the specified dollar amount, and the employee will forfeit any unused amount at year-end (“use it or lose it”).
16. Nontaxable Non-Cash Fringe Benefits Working condition fringe benefits (Must be business related and substantiated) Business use of company car, Professional dues and subscriptions No-additional-cost services Qualified employee discounts Use of on-premises athletic facilities De minimis fringe benefits Limited use of copy machine Occasional tickets for business purposes Public transportation allowances up to $245 per month Meals and lodging furnished for employer’s convenience
17. Disability Taxation Employer pays premium = Employee pays tax on benefit Employee pays premium = Employee does NOT pay tax on benefit Employee and Employer each pay a portion of premium = Employee pays tax on a portion of the benefit
18. Practice Problem 1 Bill Rogers is a salesman for Titan Chemical Inc. His base salary is $3,500 per month. His total compensation (salary plus commissions) has averaged $89,552 per year for the last three years, and he has deferred $1,350 per month to the 401(k) plan and $200 per month to his FSA for the past three years. Titan Chemical also pays $1,200 to provide Bill with long-term disability coverage that will pay 50% of his base salary should he become disabled. Bill has increased this benefit to provide 67% of his base salary by making a $600 after-tax payroll deduction. What will Bill’s disability payment be and how will it be taxed?
19. CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAMRetirement Planning & Employee Benefits Session 16End of Slides