Health, Accident , and Retirement Benefits

Health, Accident , and Retirement Benefits
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Health Insurance Plans
Traditional Health Insurance Fee for service arrangement HMO – Health Maintenance Organization Go to HMO facilities for medical care Select from a pool of doctors who are members of the HMO organization POS – Point of Service Select a primary care physician Allows access to non-HMO health care facilities PPO – Preferred Provider Organization Lower cost if using network doctors Higher cost if using out-of-network doctors Traditional – ER buys insurance from third-party carrier or does self insurance. Either the ER or EE pays premiums, then the EE is reimbursed for expenses incurred – must be paid out of pocket first. HMO – Health Maintenance Organizations prepay benefits, usually with own doctors in own facilities POS – Point of Service - is part of HMO structure, however, person can see non-HMO doctor who will provide service in accordance with HMO guidelines PPO – Preferred Provider Organization- gives EE choice of - - “in network” doctor = lower costs or “out of network” doctor – higher costs May have to choose primary care physician (PCP). Can pay higher premiums for lower deductibles and incidental cost Tax treatment - - ER payments are not considered taxable income and are excluded. EE contributions (with 125plan) are pretax items and excluded from income. If ER does not have 125 and offers the choice of benefits or salary – the benefits are non taxable, but the salary would be income that is taxable. Benefits that are received and covered under insurance plan are non taxable to the employee. Further definitions of what is and what is not a medical procedure on page 4-5.

Health Insurance Plans
ACA Affordable Care Act ALE – Applicable Large Employers Average number of employees in a year over 50 or more Provide minimum essential coverage or be penalized Full time versus part time 2015 must offer coverage to 70% of those eligible employees 2016 must offer coverage to 95% of those eligible employees Additional reporting required for 2015 submit in early 2016 6056 Informational Return Reports on each full-time employee for one or more months during the calendar year certain information on coverage offered. Proposed forms 1095C and 1095B Reporting times are the same as W2 nd W3 Penalties for failure to file similar to W2 penalties Employer Notice to Employees Notice of coverage and of availability of Markepplaces Due to employee by October 1, 2013 PPO – Preferred Provider Organization- gives EE choice of - - “in network” doctor = lower costs or “out of network” doctor – higher costs May have to choose primary care physician (PCP). Can pay higher premiums for lower deductibles and incidental cost The Health Care Exchange is to provide the ability to obtain the economies of scale in obtaining health insurance that large organizations have had. Tax treatment - - ER payments are not considered taxable income and are excluded. EE contributions (with 125plan) are pretax items and excluded from income. If ER does not have 125 and offers the choice of benefits or salary – the benefits are non taxable, but the salary would be income that is taxable. Benefits that are received and covered under insurance plan are non taxable to the employee.

Health Insurance Plans - W-2 Reporting
W-2 Reporting of Cost of Employer-Provided Health Coverage Reported in W-2 Box 12, using code DD Calculating the Reportable Cost of Coverage Premium charged method Amount charged by the insurer for an employee’s coverage COBRA applicable premium method COBRA applicable premium amount s for coverage provided Must satisfy requirements of IRC 4980B(f)(4) Modified COBRA premium method May be used when the Employer subsidizes the cost of COBRA

Health Insurance Plans Tax Treatment of Plan Contributions
Employers with no section 125 plan who give employees a choice between receiving a portion of their wages as compensation or having the amount paid to cover health insurance premiums must include the amount in the employees income. If an employer reduces an employees salary and uses those amounts to pay for health insurance premiums and then reimburses the employee for the amount of the reduction, the employer must include these amounts in the employees income. Employer contributions are generally excluded from the employees income Employee contributions are included in income unless the contributions are made through a valid salary reduction plan under IRC 125

Mandatory salary reduction contributions by current employees to pre-fund a trust created by their union to pay for health insurance coverage for retired employees are excluded from the current employees income under IRC 106. Employee accident or health insurance plan benefits received from an employer as direct or indirect reimbursements for medical expenses are excluded from the employees income. The employees expenses must be for medical care as defined by IRC 213.

Any reimbursements received in excess of the medical expense are included in the employees income. Employer health insurance benefits provided through a third party insurance company have no nondiscrimination requirements. The plan may be tailored to favor highly compensated employees. Health insurance benefits provided from an employer that is self-insured and reimburses its employees’ medical expenses from its own funds may not discriminate in favor of highly compensated employees. If the plan is discriminatory, amounts paid to highly compensated employees must be included in the income.

Section 125 Cafeteria Plans
A cafeteria plan, as defined in Section 125 of the Internal Revenue Code, is a plan in which all participants are employees who choose from a minimum of two or more benefits that consist of cash and qualified benefits. Qualified Benefits include: Accident and Health plans Dependent care assistance programs Group-Term-Life insurance Short –Term or Long-Term disability coverage Health Savings accounts Elective contributions to a section 401(k) plan Elective vacation days Cash Flexible Spending Accounts Adoption Assistance

Benefits not permitted in a Section 125 Pan Educational Assistance plans Scholarship and fellowship grants. Rides in commuter vans De minimis fringes No- additional-cost services Employee discounts Working Condition fringes Deferred compensation arrangements (except a qualified 401(k) plan, Health Savings Accounts, and Flexible Spending Accounts) Qualified transportation fringe benefits

Flexible Spending Accounts Funded by either Flex dollars or Flex credits (employer contributions) Generally, employees must make an irrevocable benefit election before each plan year begins. Changes during the plan can be made only under limited circumstances. Employer contributions Excluded from employee’s income Not subject to federal income tax withholding or employment taxes Pre-tax contributions Post-tax contributions Included in employee’s income, however, benefits received are not

Nondiscrimination Testing The plan must not discriminate in terms of eligibility, contributions, or benefits in favor of highly compensated individuals, or participants, or key employees. A plan that is discriminatory in favor of highly compensated individuals , employees, participants, or key employees are not disqualified and do not have negative tax consequences for other participants. But those highly compensated participants and key employee participants lose the tax benefits of the plan. Special Health Benefits Test. Concentration Test

401(K) plan Pre-Tax contributions are not subject to federal income tax withholding , but are subject to FICA, MED, and FUTA Cash received instead of selecting benefits Subject to federal income tax withholding as well as all employment taxes.

Overview of Health Savings and Spending Accounts

Summary Comparison of MSAs – HSAs – HRAs - FSAs
Provision (Archer) MSA Health Savings Accounts (HSA) Health Reimbursement Arrangements (HRAs) Health Care Flexible Spending Accounts (FSAs) Overview A tax-exempt trust or custodial account created to pay for the qualified medical expenses of the account holder and his or her spouse or dependents. A tax-exempt trust or custodial account created to pay for the qualified medical expenses of the account holder and his or her spouse and dependents. An employer funded account that reimburses employees for qualified medical care expenses. An employer-sponsored benefit program under which employees receive reimbursement for qualified medical expenses. Who is eligible to set up an account? Employees of businesses with 50 or fewer employees. Employee must be covered only by a high-deductible health insurance plan. Individuals and families covered only under a qualified high-deductible health insurance plan. Certain “excepted” plans are permissible (e.g. dental, vision). An employee whose employer offers an HRA. An employee whose employer offers a health care FSA option. MSA – Medical Savings Account

Provision Medical Savings Account MSA Health Savings Accounts (HSA) Health Reimbursement Arrangements (HRAs) Health Care Flexible Spending Accounts (FSAs) What are the requirements for the corresponding health plan? For 2014 self only deductible of at least $2,200 with an out-of-pocket maximum of not more than $4,350; Family deductible of at least $4,350 with an out-of-pocket maximum of not more than $8,000. Employee must be covered by a qualified high deductible health insurance plan: For 2014 self-only deductible must be at least $1,250 with an out-of-pocket maximum of not more than $6,350; family deductible must be at least $2,500 with an out-of-pocket maximum of not more than $12,700.1 Plan can provide first-dollar coverage of preventive care. No health plan requirements.

Provision MSA Health Savings Accounts (HSA) Health Reimbursement Arrangements (HRAs) Health Care Flexible Spending Accounts (FSAs) Who may contribute to the Account? Employee or employer, but not both in the same year. Employee or employer or both. Generally will be the account holder (including salary reduction). Solely the employer. What are the limits on contributions? Individual = 65% of plan deductible. Family = 75% of plan deductible Contributions to an MSA can be made in cash in a lump sum at the beginning of the year. In 2014 the annual maximum is $3,300 for self-only coverage and $6,550 for family coverage. In addition, there is a maximum Catch-Up contribution of $1, for those age 55 and older. . No limits under federal income tax law. Employers typically set limits usually equal to or less than the amount of the deductible of employees’ health plan. No limits under federal income tax law. Employers typically set limits.

Provision MSA Health Savings Accounts (HSA) Health Reimbursement Arrangements (HRAs) Health Care Flexible Spending Accounts (FSAs) Does interest accrue on funds deposited in the account? Yes. Yes. Interest accrues tax free. There is no requirement that interest accrue but employers have discretion to credit interest to the HRA accounts. No. Interest is not accrued. Do 105(h) nondiscrimination rules apply? No. “Comparable” contributions required. Employer contributions must be the same for all employees who are “eligible individuals.” However, if employee contributions to an HSA are made through a Section 125 cafeteria plan, employer contributions are subject to the Section 125 nondiscrimination rules, not the comparability rules Yes, if self-funded.

Provision MSA Health Savings Accounts (HSA) Health Reimbursement Arrangements (HRAs) Health Care Flexible Spending Accounts (FSAs) What are qualified medical expenses? Qualified medical expenses as defined in Section 213(d) of the Internal Revenue Code. Qualified medical expenses as defined in Section 213(d) of the Internal Revenue Code, e.g., amounts paid for doctors’ fees, prescription medicines, and necessary medical services not paid for by insurance. Unreimbursed qualified medical expenses as defined in Section 213(d) of the Internal Revenue Code, except (in general) for health insurance premiums: e.g., amounts paid for doctors’ fees, prescription medicines, and necessary medical services not paid for by insurance.

Provision MSA Health Savings Accounts (HSA) Health Reimbursement Arrangements (HRAs) Health Care Flexible Spending Accounts (FSAs) Can funds be carried over from one year to the next? Yes. Funds may be carried over indefinitely during a participant’s lifetime. Upon a participant’s death, an HSA may be passed on to a surviving spouse without federal tax liability. Yes. Unused amounts in an HRA may be carried over, subject to any limits set by the employer). *Yes for an additional 3 months following the end of the plan year. Are accounts portable? Yes. The account is owned by the employees. Employee continues to have access to the account when they leave or change jobs. Yes, but only at discretion of the employer. No. Unused FSA balances are forfeited to the employer if the employee leaves or changes jobs. *New Ruling

Provision MSA Health Savings Accounts (HSA) Health Reimbursement Arrangements (HRAs) Health Care Flexible Spending Accounts (FSAs) Are withdrawals for non-medical expenses allowed? Yes, but doing so will trigger a 15% tax penalty. Yes, but distributions not used exclusively to pay “qualified medical expenses” are included as income and are subject to a 10% additional tax. At the death of the individual the ownership of the account can be transferred to the spouse – otherwise the HSA ceases to be an HSA and is included in the gross income of the beneficiary or the individual’s estate. No. If the HRA allows reimbursements for expenses other than qualified medical expenses then all reimbursements from the HRA are included in the employees income.

Provision MSA Health Savings Accounts (HSA) Health Reimbursement Arrangements (HRAs) Health Care Flexible Spending Accounts (FSAs) What are the claim substantiation requirements? Claim substantiation is required. Claim substantiation by a third party is not required: however the individual HSA owner must maintain the records substantiating their claims. Plan is self-adjudicated by account owner submitting only eligible claims or reporting the taxable distribution. If the expense is self substantiated by the employee then the reimbursed amounts are included in income. Two written statements are required: One from an independent third party (EOB) and one from the employee stating that the expense was not reimbursed and is not reimbursable under any other health coverage.

Long Term Care Insurance
Generally treated as accident and health insurance contracts Benefit amounts received are excluded from income Per Diem Payments Capped at $330 per day or $120,450 annually (2014) Long Term Care coverage is not subject to COBRA Is not a qualified benefit that can be offered as part of a cafeteria plan under IRC 125 Long term care coverage that is provided as part of a flexible spending arrangement is included in the employee’s gross income. Is not subject to COBRA health care continuation requirements Not a qualified benefit that is offered as part of 125 Provided as part of flexible spending arrangement is included in the employee’s income Qualified long term care services – diagnostic, preventive, treatment, mitigating and rehabilitative services for chronically ill person Chronically ill – cannot perform 2 activities of daily living – eating, toilet, bathing, dressing, continence, or cognitive impairment requiring supervision

COBRA Health Insurance Continuation (Consolidated Omnibus Budget Reconciliation Act of 1985)
COBRA applies to employers with 20 or more employees on a typical business day The purpose of COBRA is to allow qualified beneficiaries the opportunity to elect continued group health for specified periods of time under specified qualifying events Qualifying Event Death of the covered employee; The covered employee’s termination of employment (for reasons other than gross misconduct) or reduction in hours worked; Divorce or separation of the covered employee; Entitlement of the covered employee to Medicare benefits (upon enrolling in the program); A dependent child losing that status; and Bankruptcy proceedings that cause a retired covered employee or the employee’s dependents to lose coverage. Continuing coverage must be the same as previous offering

COBRA Health Insurance Continuation (Continued)
Duration of Continuation Termination or reduction of work hours – 18 months (24 months if the reason for absence is military service) Beneficiary is disabled – 29 months Death, divorce, separation, loss of dependent child status or two or more qualifying events – 36 months Premium Requirement: 102% of health care premium rate. The 2% is allowance for additional administrative costs. Up to 150% of premium cost for qualified disabled dependents from the 18th up to the 36th month of coverage Coverage Election The election period begins the day the previous coverage terminates The election period lasts 60 days from that time (no longer) ARRA COBRA premium subsidy ended May 31, 2010 How long can someone elect to stay on COBRA

Family and Medical Leave Act
Applies to employers with 50 or more employees Guarantees employees: 12 weeks of unpaid leave in a 12 month period. Continuation of health benefits while on leave – employee is responsible for premiums during leave (may be required to pay entire premium, not just EE portion Eligibility Employed for at least 12 months (can be non-consecutive) Has worked at least 1250 hours within previous 12 months Expatriates are not covered – employees must work within the United States or any of its territories and possessions. Short term disability leave, sick leave, vacation leave and unexcused absences may be used to cover the 12-month requirement, however, these plans cannot cover the 1,250-hour rule. Job guarantee upon return from work – their job or an equivalent with not loss of pay or benefits. Enforcement – FMLA is administered and enforced by the DOL wage and hour division.

Family and Medical Leave Act
Employees returning from leave are entitled to their previous job or one that is equivalent with no loss of pay or benefits accruing before the leave.

Sick Pay Essential purpose is to replace the wages of an employee who cannot work because of an illness or injury. Sick Pay under a Separate Plan Short Term Disability Long Term Disability Third Party Sick Pay How much is taxable? Any benefits provided that are attributable to employee after tax contributions are not taxable to the employee. Benefits that are attributable to employer contributions or to employee pre tax contributions through a cafeteria plan are taxable income to the employee. Taxable? – depends on who funded plan. If employee pays into after taxes it is not taxable. If paid for by employer or pre-tax deductions – taxable. If employee pays sick pay – taxes withheld FIT, SS, Medicare and FUTA I Payments made by third party is reportable, but not taxed for FIT unless W-4S filled out. Perm Dis – taxable if premiums made by EE pretax $ or ER contributions Nontaxable if premiums made by EE post tax Not to be confused with Worker’s Compensation

Sick Pay How much is taxable?
Where the employer and employee both contribute to the premiums for a disability plan, the taxable portion of benefits received is the amount attributable to the employer-funded portion of the premiums. Where the employer and employee both contribute to a group insurance policy, special rules apply to determine the amount of benefits included in the employees income. If the employer knows the net premiums paid for at least three policy years, the formula for calculating the taxable portion is as follows: EE’s sick pay x employer-paid premiums for last 3 years Total premiums for last three years See IRS Pub. 15-A

Sick Pay Social Security, Medicare, and FUTA taxes do not apply to amounts paid under a definite plan on or after the termination of the employment relationship because of death or disability retirement. Sick pay paid to the employee's estate or survivor after the calendar year of the employee's death is not subject to Social Security, Medicare, or FUTA taxes. Sick pay paid to the employee's estate or survivor at any time after the employee's death is not subject to federal income tax withholding, regardless of who pays it. See IRS Publication 15a

Sick Pay - Responsibility for income withholding and employment taxes
Payments made by employer Employer self-insured Withhold federal income tax based on the employees most recent W-4. The employer must also pay it’s share of FICA, MED, and FUTA tax and withhold the employee’s share for all payments made within 6 calendar months after the end of the last month during which the employee worked for the employer.

Payments made by employers agent The employer pays the third party agent on a cost-plus-fee basis but retains the insurance risk. Payments are treated as if made by the employer. The third-party agent may treat the payments as supplemental wages and withhold federal income tax at the flat rate of 25%. The employer retains responsibility for FICA, MED, and FUTA withholding and payment unless it enters into an agreement with the agent to be responsible for employment taxes.

Payments made by a third party who is not an agent Employer contracts with a third-party to make disability payments and the third party bears the risk of insuring the employees. Third party receives premiums from the employer. The third party is not required to withhold federal income tax from employee payments unless the employee requests a certain amount be withheld by furnishing the third party with form W-4S. If the employee provides a W-4S the third party must begin withholding with the first payment made at least 8 days after the form is provided. Form W-4S allows the employee to request a flat dollar amount to be withheld. The minimum withholding is $20.00 per week and after withholding the employee must receive at least $10.00. If a payment is smaller or larger than the regular payment then the withholding changes by the same proportion as the payment.

Payments made by a third party who is not an agent The third party must also withhold and pay the employee’s share of FICA and MED for each payment within 6 months after the end of the last month the employee worked for the employer. The third party is also responsible for the employer’s share of FICA, MED, and FUTA unless it transfers liability back to the employer.

Sick Pay Permanent Disability Payments Workers’ compensation insurance
Subject to federal income tax withholding by the party making the payments to the extent the employer paid the premiums or the employee paid the premiums with pre-tax dollars. Workers’ compensation insurance Payments received by the employee are not subject to withholding or employment taxes. Payments must be for injuries suffered on the job.

Questions ?

RETIREMENT BENEFITS AND DEFERRED COMPENSATION PLANS
Section 4

Retirement and Deferred Compensation Plans
401(a) - Qualified Pension & Profit Sharing Plans Defined Benefit Plans , Defined Contribution Plans 401(k) - Cash or Deferred Arrangements 403(a) or 403(b) - Tax-Sheltered Annuities 457 - Deferred Compensation Plans – Public Sector and Tax-exempt groups 501(c)(18)(D) - Employee Funded Plans IRA - Individual Retirement Accounts 408(k) – SEP - Simplified Employee Pensions 408(p) – SIMPLE Plans - Savings Incentive Match Plans for Employees of Small Employers ESOP - Employee Stock Ownership Plans Nonqualified Deferred Compensation Plans EGTRRA – Economic Growth & Tax Relief Reconciliation Act of 2001 Defined Benefit Plans – Provide benefit during retirement. Based on age, compensation level, and length of service. Funded by employer contributions Annual benefit limit for 2012 = $200,000 Defined Contribution Plans – Provide benefit during retirement. Based on value of the plan. Funded by employer and sometimes employee. Annual compensation limit for 2012 = $250,000 Annual contribution limit for 2012 = $50,000 401(k) Comp limit = $250,000 Contribution limit = $17,000 Catch- up = must be 50 by end of plan year, $5,500 max

Qualified Pension and Profit Sharing Plans (IRC 401(a))
Defined Benefit Plan Payroll Dept Responsibilities. Maintain records of hours worked, compensation earned, and dates of birth and hire. Employee benefit based on employee’s age, compensation level, and years of service Plan formulas are geared to retirement benefits and not contributions Annual Compensation Limit for 2012 = $250,000 Annual benefit limit for 2012 = $200,000 Defined Contribution Plan Individual Accounts Contribution by Employer Contribution by Employee (but not always) Annual Compensation Limit for 2012= $250,000 Annual Contribution Limit = The lesser of $50,000 or 100% of the employee’s compensation for the year (up to the annual compensation limit). Defined benefit plan - designed to provide a certain level of benefits during the EE’s retirement that is generally based on the EE’s age, comp level, and length of service. 1. Formulas geared toward benefits after retirement 2. ER contribution based on EE earnings, age, life expectancy, not EE Contributions 3. Certain Benefits are insured by fed Pension Benefit Guaranty Corp 4. Early term of plan is subject to specific rules and regs 5. Contributions and benefits forfeited by non vested EE’s go into pension fund for future While benefits dept – PR resp for accurate reporting of hrs wrkd, wages earn. Contrib plan – Indvidual Accounts – benefits based on balance Contrib based on formula , ER contrib made at least annually , balance base is easy for EE to understand , no calc on age, comp level, etc – all formula , Annual Reporting done on

401(a) Profit Sharing Plans
Allows employees to participate in company profits Discretionary contribution based on a selected formula by employer Defined contribution plan only

Amounts to Remember for 2014
Plan Type Annual Deferral Limit Annual Catch up Limit Annual Compensation Limit Annual Contribution Limit W-2 Box 12 Code 401(k) $17,500 $5,500 $260,000 $52,000 D 403(b) E 457(b) G 501(c) H IRA Generally $5500 – Based on AGI $1,000 Phased – see 4-126 $5,000 408(k) SEP F 408(p) Simple $12,000 $2,500 S ESOP The lesser of 100% of annual comp. or $52,000

Cash or Deferred Arrangements (IRC 401(k))
Employee contributions are pre tax and not subject to income tax but are subject to employment taxes(FICA, MED FUTA) Contributions, as well as money earned from investing them , are not subject to income tax until they are withdrawn In addition to employee contributions, employers may contribute matching amounts. Employer matching amounts are not subject to income or employment tax. Early distribution penalty equal to 10% excise tax ADP = Actual deferral percentage

Tax Sheltered Annuities (IRC 403(B))
Public Schools, Tax Exempt Charities, Religious, Educational Organizations Contribution limits set by the economic growth and tax relief reconciliation act (EGTRRA) Employee contributions not subject to Federal Income Tax but are subject to employment taxes. Special provision for employees over 15 years of service (can exceed the maximum elective deferral amount) Additional information available – IRS Publication 571 Req , contract not purchased through qual ann plan under 403a , ee rights non forfeitable unless premium not paid , must meet non disc test , offer at least $200 in deferrals, and must allow for deferral limits for a salary reduction plan

Deferred Comp Plans for the Public Sector and Tax-Exempt Groups (IRC 457)
Eligibility – Only individuals performing services for the employer (including independent contractors) No discrimination testing EGTRRA Limits Contributions placed in tax exempt trust for employees and beneficiaries Distributions cannot be made before employee reaches 70 1/2 years old, separation of employment (retirement) or employee has unforeseeable emergency. Employee contributions not subject to Federal Income Tax Those performing services for ER – EEs and Indep Cont

Employee-Funded Plans (IRC 501(c)(18)(D))
EGTRRA Limits Employee contributions not subject to Federal Income Tax Defined contribution plan Solely funded by employee contributions Maximum deferral limit is reduced by other cash or deferral arrangements (CODAs) maintained by the employer CODA – cash or deferred arrangement Special reporting requirements – even though the contributions are not subject to FIT those wages are included in box 1 of w2. The employee can then deduct these amounts on his/her income tax return.

Individual Retirement Accounts
EGTRRA Limits After tax amount deductible based on participation in other plans Deductibility based on Adjusted Gross Income Employer contributions included in income, but not subject to federal income tax Defined Benefit or Defined Contribution Plan Usually direct deposit contributions – not payroll deductions Can be SIMPLE plan ROTH IRA Contributions are not deductible from income Distributions are not included in income if certain criteria is met Deductibility table in book

Simplified Employee Pensions (IRC 408(k)) (SEP)
Employer’s who cannot provide traditional plans Is an IRA Employer must make contribution to plan on behalf of employee based on guidelines 21 years of age Worked for employer 3 out of last 5 years Earned at least $550 in 2012 Salary reduction agreements limited to EGTRRA Employees can elect a salary reduction agreement if plan was setup before 1997.

Savings Incentive Match Plans for Employees of Small Employers (SIMPLE) IRC 408(p)
Small Business Job Protection Act of 1996 Must allow eligible employees to participate Employer with no qualified retirement plan and less than 100 employees Received at least $5,000 in compensation during any 2 prior years And expect to receive $5,000 in current year EGTRRA Limits Fully vested at time of contribution Non-Discrimination testing EE’s must have 60 days before year begins to make changes to contribution Not subject to Federal Income Tax

Employee Stock Ownership Plans (ESOP)
Must meet 401(a) requirements Participation Vesting Non discrimination ESOP buys stock with employer contributions or borrowed / leveraged funds Designed to invest primarily in employer’s stock Value of employee account changes based on stock value Not subject to federal income tax or FICA, MED, or FUTA ESOP UAL – borrowed funds from employee’s salaries

Nonqualified Deferred Compensation Plans 409(a)
An employer plan designed to defer compensation until a later date and that does not meet the requirements of IRC 401(a) Plan can be Funded or Unfunded Funded – Employer makes contributions to the plan Subject to Federal Income tax Withholding when the employee’s interest is vested Unfunded – Employers promise to make payments at a latter time Not subject to Federal Income Tax Withholding until the payments are made Funded – protected – taxable income to employee when vested.. If you stay for 4 years you will get $$. Unfunded – not protected, general promise to pay at some future date – nontaxable – constructive receipt AJCA – IRC 409A – stricter restrictions governing the inclusion of deferral amount as taxable income – ER must have binding legal obligation to pay at future date

Nonqualified Deferred Compensation Plans 409(a)
Most nonqualified deferred compensation plans are unfunded. Amounts deferred are subject to federal employment taxes (FICA, MED,FUTA). W-2 Box 3, 5 Amounts paid that were deferred in a prior year are subject to federal income tax withholding. W-2 Box 1

W -2 Reporting Requirements
MSA – Box 12 – Code R HSA – Box 12 – Code W Non-taxable Sick Pay – Box 12 – Code J Dependent Child Care – $ Box 10 Adoption Assist - $12,650 – Box 12 – Code T 401(k) – Box 12 – Code D 403(a) or 403(b) – Box 12 – Code E 457 – Box 11 or Box 12 – Code G 501(c) – Box 12 – Code H 408(k) – Box 12 – Code F 408(p) – Box 12 – 401(k) = Code D, IRA = Code S 409(a) – Box 12 – Code Y or Z

Health, Accident , and Retirement Benefits

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