Wednesday, September 29, 2010
There are times when an employer wants to implement a benefits program for the employees so as to attract and retain quality employees. Upon looking at various insured plans, the decision is that they are too expensive. There are other ways to fill that gap, though.
When we examine the premium breakdown of a group benefit plan we will see that the life insurance and long term disability (LTD) are a small portion of the overall premium. These benefits, however, provide protection for the employee against the “big ticket” what-ifs of life – what if I die, or, maybe worse, can’t work anymore? These benefits can be provided at a fairly low cost, and if the employees pay their own premium for the LTD, they would receive a non-taxable benefit if they collect from the plan.
The employees’ concern will be for medical and dental coverage – and this is where the premium on an insured plan starts to mount. Rather than go with an insured plan, take a look at a Health Spending Account (HSA) for the employees. In essence, the employer puts a predetermined amount of money into each employee’s account, and they draw it out when they incur eligible medical or dental expenses. The account balance is the employee’s to use at a time that suits them. It cannot be reclaimed by the employer, should that employee leave the company. Contributions can vary by class of employee, but once set cannot be changed until the next plan anniversary.
The advantages to the employer are that contributions to an HSA are tax deductible, and can be changed each plan anniversary so the employer is not bound by insurance rates over which he has little or no control. The employer setting up an HSA has given the employees a benefit plan, even though it may not fit the expectations of all employees, it is a lot better than the alternative - having no plan at all. There is no advantage to having employees contribute to the plan since their contributions will count only toward their medical tax credit amount, and must exceed three percent of their net earnings to before they get any tax break.
For the employees, the employer’s contributions to the plan are not a taxable benefit, and they can submit claims to their HSA in complete confidence, since the employer has no access to their account, other than to make contributions.
Special provisions apply to employees who are significant shareholders of the company, so don’t go and set up a plan with huge contributions for shareholders and minimal contributions for employees. CRA doesn’t like that, and nobody wants to be on the wrong side of CRA!
We welcome your comments and questions about this, or any other topic related to group benefits and risk management.