1 Employment Benefits Business Organizations II LAP 202 Mike Brigner, J.D.

2 Fringe Benefits Some Mandated By Law: Social Security: 3 types –SS Retirement for age 62, 65 & rising (FICA tax to Employer and Employee) –SSI (Supplemental Income) –SSD (Social Security Disability) Unemployment insurance –(Was OBES. Now JFS, Jobs & Family Services) Workers’ compensation insurance (OBWC) (Some law firms do nothing but S.S. or Workers’ Comp representation)

3 Fringe Benefits Not Mandated By Law: Health Insurance (Note: Mass, Hawaii & every European country has mandatory health insurance) Accident and Disability Insurance (AD&D) Life Insurance Retirement Plans Stock Options Perks These all may be included in “Cafeteria Plan” for employee to choose from. Usually deemed taxable compensation.

4 Employee Welfare Benefit Plans Why offer? Tax benefit to employer Contributions by employee & employer Required by law? Reporting and disclosure requirements (Complex, most local law firms don’t handle) Commonly called health insurance plans Also includes disability benefits, life insurance, dental, child care, legal services plans.

5 Federal Laws re Health Ins. HIPPA: Health Insurance Portability Act –New employer must cover pre-existing conditions –NOTE: Pregnancy IS a pre-existing conditn COBRA: Continuation of Benefits –If employer has over 20 employees –Upon leaving, employee may continue health insurance up to 3 years at own cost

6 ERISA Employee Retirement Income Security Act “Every Ridiculous Idea Since Adam” Complex, but the key to almost all pension plans (Few local law firms doing ERISA work)

7 Tax Benefits of ERISA-Qualified Retirement Plans & IRAs Deductible contributions for employers & employees Employees not taxed on contributions made for them by employer Earnings on plan assets grow tax-free until distributed Many plans (401k) permit employees to contribute own money on pre-tax basis

8 ERISA Qualified Retirement Plans Defined Benefit Plans Sets certain pension benefit amount received each month Tax-deferred contributions –So employee pays no taxes now on contributions –Instead, employee is taxes when receiving benefits, when tax bracket should be lower

9 ERISA Qualified Retirement Plans Defined Benefit Plans (cont’d) Plus: Employee can plan on definite retirement income Minus: Costly for employer to administer Minus: Employee gets one set amount, unless COLA provided Minus: Employer may borrow pension $, then go bankrupt & employees have 0

10 ERISA Qualified Retirement Plans Defined Contribution Plans Sets amount employer will contribute into participant’s account each year –Profit sharing plans (k) plans –ESOPs --Profit-sharing plans Also tax-deferred contributions Where is $? Invested in stock market

11 ERISA Qualified Retirement Plans Defined Contribution Plans (cont’d) Minus: Less certain retirement income for employee Minus: Employer can terminate plan. No new $ added, but you keep what you have Plus: Less costly for employer Plus: Portable Plus: Available for loans: buying home, medical emergency, educational purposes

12 ERISA Qualified Retirement Plans Individual Retirement Accounts (IRAs) SEP-IRAs Roth IRAs Keogh Plans 401(k) Plans

13 Qualified Plan Reporting Requirements ( Determination letter (to assure “qualified” status) –Form 8717 (User Fee) Original IRS Filing (Form 5300) –Form 5300 –Copy of Plan Annual IRS Filing –Form 5500

14 Employment Benefits Concluded Thank you Mike Brigner, J.D.