buonocore revised lesson 1

Narration: Welcome to the first lesson in the Basic Flexible Benefits Plans training module, Introduction to Flexible Benefits Plans with a Focus on Premium Only Plans. An understanding of Flexible Benefits Plans will help increase your sales because the plan is a financial tool that provides preferential tax treatment. Which means to you; that you’ll be able to show your clients (employers and employees) a way to save additional tax dollars. And the real benefit to you is that you’ll be establishing a long term business relationship and as a benefits partner.

1

Lisa Buonocore EDET 709 Big Redesign

Narration: The purpose of this training is to help you understand the basics of Flexible Benefits Plans, a value added service we offer to many of our accounts. We will specifically be focusing on Premium Only Plans – or POP for this lesson. 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 •And, understand the basics of Premium Only Plans

2


Narration: Flexible Benefits Plans, also known as Section 125 plans, were created by Congress in 1978 as a result of Internal Revenue Code Section 125. This allows a tax break for payroll deducted premiums– which is also called pre-taxing. With Section 125, the average working American can afford the cost of adding benefits, like voluntary insurance. Flexible Benefits Plans help: •Address the benefits needs of America’s changing work force. •Contain the escalating costs of employee benefits programs. •And, most importantly, make benefits more affordable through preferential tax treatment. With a Flex Plan in place, employees have a choice between cash, a taxable benefit, and tax free benefits; which are free from federal and state income taxes. We offer our employers the opportunity to set up Flexible Benefits Plans to best fit their needs at little to no cost to them. [Facilitator Notes: At this point you are setting the stage for the lesson. These points are covered in more detail in the other to lessons in this series – Positioning Flexible Benefit Plans To The Employer and Positioning Flexible Benefit Plans To The Employee.]

3


Narration:

The terms "cafeteria plan,” “flex plan,” and “section 125 plan” are all words used to describe a flexible benefits plan. Flexible benefits plans include POP, FSA, HSA, DFSA and HRA. A Premium Only Plan: allows employees to have their portion of the life and health insurance premiums deducted from their pay on a pre-tax basis. A Flexible Spending Account: is a special benefit account that allows participants to set aside pre-tax dollars to pay for certain types of qualified expenses. A Health Savings Account: is a tax-advantaged account that allows participants to set aside pre-tax funds to pay for qualified medical expenses incurred by the participant, their spouse, and any tax dependents covered under the participant’s qualified high-deductible health plan. And a Health Reimbursement Account: allows employers to fund individual reimbursement accounts for their employees and define what those funds can be used for (e.g. specified out-of-pocket expenses such as deductibles and co-pays).

4


Narration: Benefits must qualify to be pre-taxed with a Flexible Benefits Plan. Examples of qualified benefits include: •Accident and health plans, including spouse and dependent coverage. •Group term life insurance (for the employee only). •Contributions to a dependent care flexible spending account. •Contributions to a health care flexible spending account. •Adoption assistance. •401(k) plans. •Health Savings Accounts.

Some of the benefits that do not qualify to be offered under a flex plan include: •Universal life insurance. •Whole life insurance. •Long-term care insurance. •Dependent life insurance. •403(b) and 457 plans. •Health Reimbursement Arrangements.

5


Narration: While the IRS allows employees to receive tax savings on premiums, the IRS may require the employee to pay taxes on certain benefits. As you can see, disability is listed as a qualified product – but keep in mind that the benefits received from a disability plan are considered income and therefore taxable. It is the employer’s decision, as the plan sponsor, to pretax disability or posttax disability. If disability is paid with pretax dollars and an employee files a claim, the benefit amount they receive will have the FICA (or Federal Insurance Contribution Act) taxes already taken out. The employer will then be responsible to match the FICA amount. You may notice that Critical Illness is not listed on the slide. Critical Illness policies include lump sum payments the IRS may consider taxable income therefore, qualify for pre-taxing. However, we take the position that they should not be pre-taxed because of the taxability of the benefits when paid out. Please refer to product specific information regarding taxability of benefits. Life insurance on the other hand is not a qualified product line when it comes to pretaxing. [Facilitator Note: Review the products in each Product Line Category – it is recommended that you ask the class to name the products and then list them on a whiteboard or flip chart.

6


IMPORTANT NOTE: Critical Illness policies also qualify for pre-taxing; however, Colonial Life/Paul Revere recommends that they not be pre-taxed. For product specific information, please refer to the product’s taxability of benefits.]


6

Narration: The rest of the lessons in this series will focus on the most popular form of Flexible Benefits Plans – the Premium Only Plan. Premium Only Plans allow employees to pay their share of qualified benefit plans with pre-tax salary dollars. Employees pay for qualified benefits through premiums which are deducted from their salaries before income and Social Security (also known as FICA) taxes are calculated. As a result, employees’ taxable incomes are decreased. Our products and services help employers build a customized Premium Only Plan. Employees have a menu of benefits to choose from, giving them the opportunity to tailor their benefits package to meet their individual needs. In addition, employees who choose to purchase our qualified products have the option of pre-taxing the premiums for most of our products. We offer administration of Premium Only Plans through an external vendor at no charge to an employer, as long as they maintain a minimum of $1,800 in annual premium. The account needs to maintain this minimum in order for us to continue to pay the vendor fee for them. The employer is known as the “plan sponsor” and is responsible for maintaining compliance with federal and state regulations. For more information, refer to Lesson 2: Positioning Premium Only Plans to Employers. [Facilitator Note: POPs are the most popular use of cafeteria plans and allow employees to pay their share of the cost of qualified benefit plans with pre-tax salary dollars.]

7


Narration: Let’s look at the benefits and trade-offs of a Premium Only Plan. The employer benefits include: •Enhancing the employer’s current benefits program as it offers additional choices to meet the individual needs of the employees. •Making benefits more affordable for employees through preferred tax treatment. •And finally, reducing an employer’s payroll taxes. These benefits to pre-taxing help an employer attract and maintain quality employees through a well rounded benefits package. And of course, what employer doesn’t like the idea of adding to their bottom line by saving taxes? So the employer “wins” with a Premium Only Plan! There are also some trade-offs to implementing a Premium Only Plan for the employer. •The potential cost considerations includes fees paid to a lawyer or professional tax advisor, third-party administrative services fees, and the cost of updating the payroll system to accommodate pretax deductions. •The employer must also implement the plan which does require some administration on their part. Although the plan is the employer’s plan, some insurance companies (ourselves included) can help provide the employer with the communication support and documentation required to implement the Premium Only Plan. •There are also some restrictions on certain business owner’s eligibility in the plan. You will learn more about eligibility in Lesson 2: Positioning Premium Only Plans to Employers.

8


Narration: Now – what can a Premium Only Plan do for an employee? The benefits to the employee from Premium Only Plan include: •Providing employees the ability to tailor a benefits program to meet their individual needs. •Making the purchase of employee benefits more affordable through federal, state, and FICA tax savings. •And, giving a potential increase in spendable income, or the opportunity to purchase additional benefits with the tax savings. And since premiums are taken directly from an employee’s paycheck, it makes this a relatively simple concept to communicate. There are some trade-offs for the employee as well, including: •Benefit elections are irrevocable during the plan year. They can be changed only if there is a qualified change in status or at the annual open enrollment period. •Any reduction in your taxable pay may also lead to a reduction in your Social Security benefits; however, for most employees, the reduction in Social Security benefits is insignificant compared to the value of paying lower taxes today.

9


Narration: And last, but not least - what are the advantages of a Premium Only Plan to YOU, as the sales representative! There are quite a few benefits to you. Which include: •Becoming a benefits partner of the employer. By working together with the employer, you are a partner in establishing a better benefits program instead of only selling insurance products. •Benefit elections are irrevocable during the plan year and can be changed only if there is a qualified change in status or at the annual open enrollment period which helps increase overall persistency. •Protecting accounts is critical to current and future business. Remember, if you as the sales representative don’t tell your accounts about these tax savings, the competition will. •Premium Only Plans require all eligible employees be informed of the benefits offered under the plan. This helps give our products maximum exposure to all of the eligible employees. But there are some trade-offs for you as the representative, which can make you responsible for: •Ordering plan documents through AmeriFlex •Filling out the Flex Plan Supplemental Form •Reviewing Plan documents with the employer •And, reviewing roles and responsibilities of you and the employer

10


Narration:

[click to have each bullet appear] As discussed with some of the tradeoffs, there are some areas of concern for Premium Only Plans around market conduct risk. •Misconception that we are a legal or tax advisor. We are not licensed to provide legal or tax advice, and therefore will not provide a legal opinion on how to administer a Premium Only Plan or other legal areas. •Because the dollars are redirected into the Premium Only Plan, reductions may result in a decrease in the amount of Social Security benefits paid at retirement or disability. However, any reductions should be very minimal. •The date a participant’s plan becomes effective is important, for our purposes, because the effective date directly impacts future billings and claims. When the effective date is not communicated properly, it can cause multiple service problems and may even cause legal problems. With a Premium Only Plan, problems with effective dates occur most often with newly eligible employees or existing employees who experience a status change.

11


Narration: So, why should you offer Premium Only Plans? It is a value added service that can sometimes make the difference for an employer when deciding to partner with us. For you as a sales representative, it provides several benefits. •Premium Only Plans require that all eligible employees be informed of the benefits offered under the plan which helps give our products maximum exposure to all of the eligible employees. •By working together with the employer, you are a partner in establishing a better benefits program instead of just selling insurance products. •Benefit elections are irrevocable during the plan year. And can only be changed with a qualified status change or during annual open enrollment, which helps increase overall persistency and BQI. •Protecting accounts is critical to current and future business and if you don’t tell your accounts about Premium Only Plans, the competition will. Remember, we offer Free Premium Only Plan administration through AmeriFlex if there is $1,800 in annual premium.

12


Facilitator Notes: The following three slides are questions that you can ask the class and see what they’ve learned. [Click for the answer to appear] Question One: 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?

DDC POP URM HSA

The correct answer is b – POP. A Premium Only Plan or POP allows participants to use pre-tax dollars to pay for qualified coverage premiums.

13


Question Three: [Click for the answer to appear] Who benefits from a Premium Only Plan?

The Employer by reducing payroll taxes

The Employee by having a greater choice of benefits and saving Federal, State, and FICA taxes The Producer by establishing a Benefits Partner A and B only All of the above

The correct answer is e – All of the above. By implementing a Premium Only Plan a “win – win – win” situation is created. The employer, the employee, and you, the producer, benefit.

14


Congratulations, you have completed Lesson 1 of the Basic Flexible Benefits Module, Introduction to Flexible Benefits Plans with a focus on Premium Only Plans.

15


buonocore revised lesson 1

Documents