Here's a brief overview of sixteen benefits that may help you strengthen your employee packages:
Cross-tested plans
Also referred to as new comparability plans, cross-tested plans are used to provide a greater share of the contributions for the principals or a select group of employees. Plan designs using cross-tested allocation formulas allow companies to make larger contributions for certain job classifications. The allocation formula may state that highly compensated employees or owners will receive a considerably greater percentage of pay allocation than the staff employees. This type of formula is well suited for smaller employers and often works well where the key employees, on average, are older than the other employees.
Executive life insurance
A simple and tax-efficient way for a business to help selected employees pay for additional life insurance. The employee applies for life insurance, names a beneficiary, and pays income tax on the amount of the premium. The employer pays the premium and deducts the amount.
Group Long Term Care
An employer may provide employees with insurance which generally covers nursing home costs, home health care costs, and custodial care required due to a chronic illness or condition.
401(k)
A profit-sharing or stock bonus plan which permits your employees to help provide for their own retirement by electing to reduce their salaries by a set amount and contributing that amount to the plan on a pre-tax and/or after-tax basis. The company can decide whether or not to contribute to the plan.
Key executive life insurance
A plan to protect the business against the financial losses that can occur when a valuable employee dies. The company obtains life insurance on the life of each key executive. In the unfortunate instance of the death of a key executive, the life insurance provides the business tax-free dollars to help replace lost profits, recruit a replacement and cover training costs.
Disability income benefit
A way to use tax-deductible business dollars to provide salary continuation benefits for selected key employees in the event of a disabling injury or illness.
Group life insurance
A way for your business to provide life insurance for yourself and your employees and deduct the employee premiums as a business expense. Insurance amounts can be a flat amount for all employees, an amount based on job level, or an amount of coverage based on salary (two or three times salary is common).
Money purchase pension plan
A qualified retirement plan in which the employer promises to contribute a definite amount of each year for each participant up to 25% of compensation or $30,000 (whichever is less). Once you have set the amount, youíre obligated to fund it annually.
Nonqualified deferred compensation plan
A way of rewarding a few select employees and providing for their retirement. Commonly a contractual agreement to postpone compensation. The company may not deduct contributions until the payments are actually made to the recipient in later years.
Profit sharing
A qualified retirement plan in which the company can either set a definite amount to contribute each year for participants or determine the amount to contribute each year on a discretionary basis. Contributions on behalf of each participant are limited to a maximum of $40,00 a year (or 100% of the participantís compensation, if less). The companyís maximum allowed deduction is 25% of the aggregate compensation of the employees covered by the plan for the year.
Roth IRAs
Tax-free growth potential and access to contributions are just two of the unique benefits of a Roth IRA. These plans also can be paired with a retirement plan to help maximize savings. Plus, when offered through payroll deduction, Roth IRAs provide employees with another benefit at virtually no cost to their employer.
Salary continuation plan
The business promises to provide benefits to selected key employees in return for their promise to continue working for the business until retirement. Often funded through cash value life insurance, it is typically used to provide key executives with retirement, disability and/or death benefits.
Simplified Employee Pension (SEP)
An uncomplicated way to contribute up to 25% of compensation or $40,000 (whichever is less) to an individual retirement account. SEPs require almost no paperwork, making them much easier to administer than qualified plans.
SIMPLE IRAs
An option for companies with 100 or fewer employees. This salary-deferred plan is set up using IRAs. Employees may contribute up to $6,000 (adjusted annually) through salary reduction, annually. Employers must contribute, matching the employee contribution dollar-for-dollar on the first 3% of compensation. No minimum participation requirements exist.
Split-dollar life insurance
A way for a corporation to provide personal life insurance for executives, shareholders or employees at a low cost. The company agrees to pay for all or part of the premiums of a permanent life insurance policy. Upon the employeeís death, the cost of the premiums advanced is repaid to the corporation from the death proceeds.
Qualified Retirement Plan
Generally a defined benefit, money purchase pension, profit sharing or stock bonus plans. When an employer adopts one or more of these plans they are subject to discrimination testing requirements, funding obligations, deduction limitations and other applicable requirements.
Consult with your Financial or Tax Advisor on specific plans related to your situation.