1. Legal Services Plan Chapter 56 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company1 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. Legal Services Plan Chapter 56 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company2 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. Legal Services Plan Chapter 56 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company3 Advantages 1.Provides legal services for employees without additional employee expenditures 2.Costly legal expenses are provided through insurance-type or group benefit program

4. Legal Services Plan Chapter 56 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company4 Disadvantages 1.Not all employees need legal services 2.Difficult to fund and administer 3.Need to exclude actions by employee against employer 4.Either employer expenditures for plan or value of legal services provided are taxable income to employee

5. Legal Services Plan Chapter 56 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company5 Design Features 1.Any group of employees can be covered 2.Benefits are scheduled or comprehensive: –Scheduled plan pays only for benefits listed –Comprehensive plan pays for all but excluded benefits

6. Legal Services Plan Chapter 56 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company6 Design Features 3.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

7. Legal Services Plan Chapter 56 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company7 Tax Implications 1.Cost of legal services plan tax deductible to employer with certain limits 2.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