What is it?

1. What is it? A legal services plan (a.k.a. “prepaid legal services plan”) is an employer-funded plan that makes legal services available to employees • Plan expenses tax deductible to employer • Plan benefits taxable to employee

2. When is it indicated? • Larger employers typically provide for employees in collective bargaining units • Plans usually funded through multi-employer trusteeships sponsored by labor unions

3. Disadvantages • Not all employees need legal services • Difficult to fund and administer • Need to exclude actions by employee against employer • Either employer expenditures for plan or value of legal services provided are taxable income to employee

4. Design Features • Any group of employees can be covered • Benefits are scheduled or comprehensive: • Scheduled plan pays only for benefits listed • Comprehensive plan pays for all but excluded benefits

5. Design Features • Plans can be provided on following bases: • Indemnity: employee reimbursed for covered expenditures up to set limit • Closed-panel: must use specified lawyers • Open-panel: can choose any lawyer; lawyer must agree in advance to fee schedule

6. Tax Implications • Cost of legal services plan tax deductible to employer with certain limits • Tax for employee: Employer prefunds plan: Premiums taxed to employee; benefits received tax-free Employer funds out of general revenue: Employee taxed on value of benefits as received

7. Advantages • Provides legal services for employees without additional employee expenditures • Costly legal expenses are provided through insurance-type or group benefit program