The Process of Employee Benefit Planning Chapter 28

The Process of Employee Benefit Planning Chapter 28 Employee Benefit & Retirement Planning What Benefit Plans Can Do 1. Help employees meet needs that otherwise could not be met a) health care b) retirement savings c) provide income if employee dies Copyright 2009, The National Underwriter Company 1

The Process of Employee Benefit Planning Chapter 28 Employee Benefit & Retirement Planning What Benefit Plans Can Do 2. Provide unique tax benefits a) employer enjoys immediate tax deduction for funding retirement plan; employees can defer tax b) employer cost for health care plans are fully deductible and benefits are completely tax-free to employee c) substantial tax benefits exist for other plans such as group-term life, disability, stock options, etc. Copyright 2009, The National Underwriter Company 2

The Process of Employee Benefit Planning Chapter 28 Employee Benefit & Retirement Planning Steps in the Planning Process 1. Meet client and gather data 2. Identify employer’s objectives, quantify and prioritize them 3. Analyze existing plans to identify weaknesses and needs for revision 4. Formulate a new overall employee compensation plan Copyright 2009, The National Underwriter Company 3

The Process of Employee Benefit Planning Chapter 28 Employee Benefit & Retirement Planning Steps in the Planning Process 5. Communicate the new plan effectively 6. Develop a program for periodic review of plan’s effectiveness Copyright 2009, The National Underwriter Company 4

The Process of Employee Benefit Planning Chapter 28 Employee Benefit & Retirement Planning Steps in the Planning Process STEP 1: Meet the client and gather data Need to know: – employee census – employer’s financial information – complete information on existing plans – financial and estate planning needs of executives Copyright 2009, The National Underwriter Company 5

The Process of Employee Benefit Planning Chapter 28 Employee Benefit & Retirement Planning Steps in the Planning Process STEP 2: Identify the employer’s objectives; quantify and prioritize them Common plan objectives include: – heath care, retirement income, disability and life insurance for employees; these can be coordinated with Social Security and employee’s own plans – recruit, reward, retain, retire employees Copyright 2009, The National Underwriter Company 6

The Process of Employee Benefit Planning Chapter 28 Employee Benefit & Retirement Planning Steps in the Planning Process Common plan objectives (cont’d): – resist unionization or provide nonunion employees with comparable benefits – provide benefits similar to those offered by others in same industry or region while minimizing costs – reward key employees while minimizing costs for non-key employees – maximizing benefits for shareholders or owner-employee Copyright 2009, The National Underwriter Company 7

The Process of Employee Benefit Planning Chapter 28 Employee Benefit & Retirement Planning Steps in the Planning Process STEP 3: Analyze existing plans to identify weaknesses or needs for revision – who is covered under existing plans and what benefits are provided – what documentation exists and what have employees received – level and trend in plan’s annual costs – who administers the plan; when does contract expire Copyright 2009, The National Underwriter Company 8

The Process of Employee Benefit Planning Chapter 28 Employee Benefit & Retirement Planning Steps in the Planning Process STEP 4: Formulate a new overall employee compensation plan – base recommendations on comprehensive view of employer’s compensation planning needs and goals – effective plan design depends on planner’s diligence and professional judgment Copyright 2009, The National Underwriter Company 9

The Process of Employee Benefit Planning Chapter 28 Employee Benefit & Retirement Planning Steps in the Planning Process STEP 5: Communicate the new plan effectively – Employees’ subjective reaction to a benefit plan can affect plan success; effective communication is key – Clearly written summary plan descriptions can • communicate specific plan features • inform employees of value of benefit plan Copyright 2009, The National Underwriter Company 10

The Process of Employee Benefit Planning Chapter 28 Employee Benefit & Retirement Planning Steps in the Planning Process STEP 6: Develop a program for periodic review of the plan’s effectiveness – establish schedule for reviewing and monitoring plan effectiveness and cost – failure to carefully follow IRS rules related to “tax avoidance” transactions can result in penalty Copyright 2009, The National Underwriter Company 11

The Process of Employee Benefit Planning Chapter 28 Employee Benefit & Retirement Planning True or False? 1. Using a formal fact finder to gather data from an employer is part of the process of “due diligence. ” 2. Employers may differ in the priority given to specific employee benefits. 3. Once an employer’s needs are known and ranked in order, it is a simple matter to develop a benefit plan. Copyright 2009, The National Underwriter Company 12

The Process of Employee Benefit Planning Chapter 28 Employee Benefit & Retirement Planning True or False? 4. Employees’ subjective reaction to a benefit plan can be as important to plan success as the objective features of the plan. 5. In today’s benefit environment, communicating plan features to employees is a simple and straightforward process. 6. Transactions or products that the IRS deems to be for tax avoidance will be assessed stiff penalties. Copyright 2009, The National Underwriter Company 13

The Process of Employee Benefit Planning Chapter 28 Employee Benefit & Retirement Planning Discussion Question The rank and file employees at Acme Manufacturing have group term life insurance equal to their salary, a basic health care plan and a profit share plan that, over the past five years, has either not been funded or has had relatively small employer contributions. Rank and file employees resent the fact that the owner and key employees have more generous benefits than they do. How would you communicate the value of their benefits to the rank and file employees at Acme? Copyright 2009, The National Underwriter Company 14