The Process of
Employee Benefit Planning
Chapter 28
Employee Benefit & Retirement Planning
What Benefit Plans Can Do
1. Help employees meet needs that otherwise could
not be met
a) health care
b) retirement savings
c) provide income if employee dies
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The Process of
Employee Benefit Planning
Chapter 28
Employee Benefit & Retirement Planning
What Benefit Plans Can Do
2. Provide unique tax benefits
a) employer enjoys immediate tax deduction for
funding retirement plan; employees can defer tax
b) employer cost for health care plans are fully
deductible and benefits are completely tax-free
to employee
c) substantial tax benefits exist for other plans such
as group-term life, disability, stock options, etc.
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The Process of
Employee Benefit Planning
Chapter 28
Employee Benefit & Retirement Planning
Steps in the Planning Process
1. Meet client and gather data
2. Identify employer’s objectives, quantify and prioritize
them
3. Analyze existing plans to identify weaknesses and
needs for revision
4. Formulate a new overall employee compensation
plan
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The Process of
Employee Benefit Planning
Chapter 28
Employee Benefit & Retirement Planning
Steps in the Planning Process
5. Communicate the new plan effectively
6. Develop a program for periodic review of plan’s
effectiveness
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The Process of
Employee Benefit Planning
Chapter 28
Employee Benefit & Retirement Planning
Steps in the Planning Process
STEP 1: Meet the client and gather data
Need to know:
– employee census
– employer’s financial information
– complete information on existing plans
– financial and estate planning needs of executives
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The Process of
Employee Benefit Planning
Chapter 28
Employee Benefit & Retirement Planning
Steps in the Planning Process
STEP 2: Identify the employer’s objectives; quantify
and prioritize them
Common plan objectives include:
– heath care, retirement income, disability and life insurance
for employees; these can be coordinated with Social
Security and employee’s own plans
– recruit, reward, retain, retire employees
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The Process of
Employee Benefit Planning
Chapter 28
Employee Benefit & Retirement Planning
Steps in the Planning Process
Common plan objectives (cont’d):
–
resist unionization or provide nonunion employees with
comparable benefits
–
provide benefits similar to those offered by others in same
industry or region while minimizing costs
–
reward key employees while minimizing costs for non-key
employees
–
maximizing benefits for shareholders or owner-employee
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The Process of
Employee Benefit Planning
Chapter 28
Employee Benefit & Retirement Planning
Steps in the Planning Process
STEP 3: Analyze existing plans to identify
weaknesses or needs for revision
– who is covered under existing plans and what benefits are
provided
– what documentation exists and what have employees
received
– level and trend in plan’s annual costs
– who administers the plan; when does contract expire
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The Process of
Employee Benefit Planning
Chapter 28
Employee Benefit & Retirement Planning
Steps in the Planning Process
STEP 4: Formulate a new overall employee
compensation plan
–
base recommendations on comprehensive view of
employer’s compensation planning needs and goals
–
effective plan design depends on planner’s diligence and
professional judgment
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The Process of
Employee Benefit Planning
Chapter 28
Employee Benefit & Retirement Planning
Steps in the Planning Process
STEP 5: Communicate the new plan effectively
– Employees’ subjective reaction to a benefit plan can affect
plan success; effective communication is key
– Clearly written summary plan descriptions can
•
communicate specific plan features
•
inform employees of value of benefit plan
Copyright 2009, The National Underwriter Company
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The Process of
Employee Benefit Planning
Chapter 28
Employee Benefit & Retirement Planning
Steps in the Planning Process
STEP 6: Develop a program for periodic review of
the plan’s effectiveness
– establish schedule for reviewing and monitoring plan
effectiveness and cost
– failure to carefully follow IRS rules related to “tax
avoidance” transactions can result in penalty
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The Process of
Employee Benefit Planning
Chapter 28
Employee Benefit & Retirement Planning
True or False?
1. Using a formal fact finder to gather data from an
employer is part of the process of “due diligence.”
2. Employers may differ in the priority given to specific
employee benefits.
3. Once an employer’s needs are known and ranked in
order, it is a simple matter to develop a benefit plan.
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The Process of
Employee Benefit Planning
Chapter 28
Employee Benefit & Retirement Planning
True or False?
4. Employees’ subjective reaction to a benefit plan can
be as important to plan success as the objective
features of the plan.
5. In today’s benefit environment, communicating plan
features to employees is a simple and
straightforward process.
6. Transactions or products that the IRS deems to be
for tax avoidance will be assessed stiff penalties.
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The Process of
Employee Benefit Planning
Chapter 28
Employee Benefit & Retirement Planning
Discussion Question
The rank and file employees at Acme Manufacturing
have group term life insurance equal to their salary, a
basic health care plan and a profit share plan that, over
the past five years, has either not been funded or has
had relatively small employer contributions. Rank and
file employees resent the fact that the owner and key
employees have more generous benefits than they do.
How would you communicate the value of their benefits
to the rank and file employees at Acme?
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