CPP/FPC Study Group

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2. Questions ?

3. THE EXAM ? Any Questions ? Concerns ?

4. Health and Accident Benefits Section 4

5. Health Insurance Plans • Traditional health insurance • Fee for service arrangement • HMO – Health Management Organizations • POS – Point of Service • PPO – Preferred Provider Organizations • Tax Treatment of Contributions

6. Summary Comparison ofHSAs – FSAs – HRAs - MSAs

7. Summary Comparison ofHSAs – FSAs – HRAs - MSAs 1Amounts to increase by CPI-U.

8. Summary Comparison ofHSAs – FSAs – HRAs - MSAs

9. Summary Comparison ofHSAs – FSAs – HRAs - MSAs

10. Summary Comparison ofHSAs – FSAs – HRAs - MSAs

11. Summary Comparison ofHSAs – FSAs – HRAs - MSAs

12. Summary Comparison ofHSAs – FSAs – HRAs - MSAs

13. Summary Comparison ofHSAs – FSAs – HRAs - MSAs

14. Summary Comparison ofHSAs – FSAs – HRAs - MSAs

15. Summary Comparison ofHSAs – FSAs – HRAs - MSAs

16. Summary Comparison ofHSAs – FSAs – HRAs - MSAs *New Ruling

17. Summary Comparison ofHSAs – FSAs – HRAs - MSAs

18. Long Term Care Insurance • Generally treated as accident and health insurance contracts • Amounts received are excluded from income • Per Diem Payments • Capped at $300 per day(2011).

19. COBRA Health Insurance Continuation(Consolidated Omnibus Reconciliation Act of 1985) • Employers: 20 or more employees • Purpose: 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.

20. COBRA Health Insurance Continuation (Continued) • Duration of Continuation • Termination or reduction of work hours – 18 months • Absence due to military service – 24 months • 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)

21. Family and Medical Leave Act • Employers: 50 or more employees • Guarantees employees: • 12 weeks of unpaid leave in a year. • 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.

22. 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 taxation requirements • Permanent Disability Benefits • Difference between Sick Pay and Workers Compensation

23. Cafeteria Plans • Provides a choice among taxable (cash) and nontaxable (qualified benefits) • Qualified benefits include: • Coverage under accident and health insurance plans • Medical, Dental, Vision, Etc. • Coverage under dependent care assistance plans • Group term Life insurance • Qualified adoption assistance • Funded by either Flex dollars or salary reductions • Nondiscrimination Testing • Eligibility Testing • Contributions and Benefits Test • Concentration Test • Special Health Benefits Test

24. Tax treatment of Cafeteria Plans • Employer contributions • Excluded from employee’s income • Not subject to federal income tax withholding or employment taxes • Pre-tax contributions • Excluded from employee’s income • Post-tax contributions • Included in employee’s income, however, benefits received are not

25. Questions ?

26. RETIREMENT BENEFITS AND DEFERRED COMPENSATION PLANS Section 4

27. Retirement and Deferred Compensation Plans • 401(a) - Qualified Pension & Profit Sharing 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

28. Qualified Pension and Profit Sharing Plans (IRC 401(a)) Defined Benefit Plan 5 Characteristics (4-85 2011) Payroll Dept Responsibilities Annual benefit limit = $195,000 Defined Contribution Plan Individual Accounts Contribution by Employer Contribution by Employee (but not always) Annual Compensation Limit = $245,000 Annual Contribution Limit = $49,000 Or 100% of Employee compensation

29. Amounts to remember

30. Pension Plans Benefit determined when employee retires Payable over employee’s life span Employers contributions are not based on profit Defined benefit plan or defined contribution plan Profit Sharing Plans Allows employees to participate in company profits Discretionary contribution based on a selected formula by employer Defined contribution plan only 401(a) Pension Plans vs.Profit Sharing Plans

31. Cash or Deferred Arrangements (IRC 401(k)) Pre-Tax contributions that decrease Employee’s taxable income Employer can make deferrals without employee consent up to 3% Employee can then stop deferrals and receive cash or continue Non Discrimination testing Contributions to all plans are included in determining limit Early distribution penalty equal to 10% excise tax Employee contributions not subject to Federal Income Tax Contribution amounts are subject to Social Security and Medicare Tax

32. Tax Sheltered Annuities (IRC 403(B)) Public Schools, Tax Exempt Charities, Religious, Educational Organizations Requirements Contribution limits EGTRRA Employee contributions not subject to Federal Income Tax Special provision for employees over 15 years of service Additional information available – IRS Publication 571

33. Deferred Comp Plans for the Public Sector and Tax-Exempt Groups (IRC 457) Eligibility 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

34. 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 CODAs maintained by the employer

35. 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 FIT Defined Benefit or Defined Contribution Plan Usually direct deposit contributions – not payroll deductions Can be SIMPLE plan ROTH IRA Contributions not deductible Not included in income if meet criteria May contribute double amount of traditional IRA deductible amount

36. 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 $500 in 2008 • Salary reduction agreements limited to EGTRRA • Employees can elect a salary reduction agreement if plan was setup before 1997. Simplified Employee Pensions (IRC 408(k)) (SEP)

37. 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 Savings Incentive Match Plans for Employees of Small Employers (SIMPLE)IRC 408(p)

38. Must meet 401(a) requirements • Participation • Vesting • Non discrimination • ESOP buys stock with employer contributions or borrowed / leveraged funds • Stock bonus plan • Combined stock bonus and money purchase plan • Designed to invest primarily in employer’s stock • Value changes based on stock • Not considered wages Stock Ownership Plans (ESOP)

39. Nonqualified Deferred Compensation Plans • Compensation will be deferred until a later date • Funded vs. Unfunded • Funded • Subject to taxation • Unfunded • Not subject to taxation • Cannot be any other type of deferral plan • American Jobs Creation Act of 2004

40. 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 – $5000 - Box 10 • Adoption Assist - $10,630 – 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

41. Questions ?

42. Discussion Time Any questions on: • Prior Topics • Topic this week • Homework Problems

43. Next Class Topics: Section 5 Paying the Employee and Section 6 Withholding Taxes