Updated 05/2013

1. Updated 05/2013

2. Introduction to Flexible Benefits Plans By the end of this lesson you will be able to: Comprehend a basic overview of Flexible Benefits (Flex) Plans Understand what benefits qualify for Flexible Benefits Plans Understand the basics of Premium Only Plans Lesson Objectives

3. Introduction to Flexible Benefits Plans Flexible Benefits Plans (Flex Plans) emerged as a result of Internal Revenue Code (IRC) Section 125 Section 125 was created by Congress in 1978 to: • Address the benefits needs of America’s changing work force • Contain the escalating costs of employee benefit programs • Most importantly, make benefits more affordable through preferential tax treatment Introduction Flex Plans allow employers and employees to save tax dollars

4. Introduction to Flexible Benefits Plans Flexible Benefits Plan Overview

5. Introduction to Flexible Benefits Plans What Benefits Qualify for Pretaxing? Benefits that Qualify: Accident and Health/Medical Plans Group Term Life Insurance (employee only) Contributions to a Dependent Care FSA Contributions to a Health Care FSA Adoption Assistance 401(k) Plans Health Savings Accounts (HSAs) • Benefits that Don’t Qualify: • Universal life insurance • Whole life insurance • Long-term care insurance • Dependent life insurance • 403(b) and 457 plans • Health Reimbursement Arrangements (HRAs)

6. Introduction to Flexible Benefits Plans Pre-taxing Our Products Qualified Product Lines Unqualified Product Lines ACCIDENT & HEALTH DISABILITY LIFE SPECIALRISK Product availability varies by state. Refer to the Advanced Flexible Benefits Tutorial and Propr for more information.

7. Introduction to Flexible Benefits Plans POP plans are the most popular use of cafeteria plans Allow employees to pay their share of the cost of qualified benefit plans with pre-tax salary dollars Value added service – no cost to the employer who qualifies! • Three employees who elect our coverage • Minimum annualized premium of $1,800 Employer is the plan sponsor This is for illustrative purposes only. Actual results may vary. Premium Only Plan - POP

8. Introduction to Flexible Benefits Plans • Enhances their current benefits program • More affordable benefits for their employees • Reduces their payroll taxes. Tax savings! Employer Benefits Employer Trade-offs • Potential cost considerations • Implementing payroll deductions • Eligibility

9. Introduction to Flexible Benefits Plans • Tailor benefits to their individual needs • Reduces their Federal, State, & FICA taxes. Tax savings! • Increased spendable income Employee Benefits Employee Trade-offs • Locked into plan for one year • Irrevocability of elections • Possible reduction in Social Security benefits.

10. Introduction to Flexible Benefits Plans • Benefit partner • High persistency due to irrevocability of elections • Account protection • Maximum exposure • Order plan documents through Ameriflex • Flex supplemental form • Review plan documents with employer • Review roles and responsibilities Your Benefits Your Trade-offs

11. Introduction to Flexible Benefits Plans Misconception that we are a legal or tax advisor Reduction in Social Security benefits Free-look provision and cancelling coverage Effective dates Potential Market Conduct Risk Issues

12. Introduction to Flexible Benefits Plans Maximum product exposure. Establish partnership with business owner. Increased persistency and BQI. Stay ahead of the competition. Why offer POP? Flexible Benefits Free POP administration with $1,800 premium

13. Introduction to Flexible Benefits Plans • Dependent Care Flexible Spending Account • Premium Only Plan • Medical Flexible Spending Account • Health Savings Account Which type of Flexible Benefit Plan option below allows employees to pay their share of the cost of medical coverage with pre-tax salary dollars? Lesson Quiz

14. Introduction to Flexible Benefits Plans • The Employer by reducing payroll taxes • The Employee by having a greater choice of benefits and saving Federal, State, and FICA taxes • The Sales Representative by establishing a Benefits Partner • A and B only • All of the above Who benefits from a Premium Only Plan? Lesson Quiz

15. Introduction to Flexible Benefits Plans Effective immediately, employers that offer FSAs that don't include a grace period will have the option of allowing employees to roll over up to $500 of unused funds at the end of this plan year. Additionally, this optional adoption: • Does not reduce the $2,500 limit on annual salary reduction; • Must be uniformly applied (for example, if capped at less than $500); • Is in lieu of a grace period.

16. Introduction to Flexible Benefits Plans Congratulations! You’ve successfully completed Lesson 1: Introduction to Flexible Benefits Plans If this lesson has been helpful to you, please refer to Propr to take the other lessons in this Basic Flexible Benefits Training Tutorial. We welcome your comments and ideas, and would like to know what you think. Email us at CLAInstructionalDesigners@ColonialLife.com.