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Section 125 Plan Corporate Resolution

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Section 125 Plan Corporate Resolution Powered By Docstoc
					            Is
                  Section125
                                                working for you?




A Section 125 plan can provide tax savings to
your company and your employees…
if it is in compliance.




                                                                     A division of
                                                        Combined Insurance Company of America,
                                                                   an Aon company
                              If you have a
                              Section125 plan now...
                              We can help you determine if you are in IRS compliance
                              (IRS penalties of up to $25,000 per day are possible if your company is out of compliance!)


Many companies are
already using Section125,        SECTION125 – IRS COMPLIANCE CHECK LIST
and for good reason! The
Section125 tax regulation        IRS Requirement:                                              Yes            No
provides an opportunity to
obtain favorable tax treat-      Does your Section 125 plan have an up-to-date
                                 plan document available for immediate inspection?
ment for your company
and your employees on            Does your Section 125 plan use the language
dollars now being spend-         and format which was approved by a resolution
ing on qualifying benefits.      from your Board of Director and is contained
                                 in your corporate minute books?
A Section125 Plan allows
employees to purchase            Are you using required election forms for
certain benefits (such as        each employee?
group health insurance
                                 Are current copies of required election forms available
and individual voluntary         for inspection?
insurance coverage) with
Pre-Tax dollars. This            Do you currently pass the Discrimination Testing for
                                 the 25% Rule?
reduces the employees’
gross taxable income and         Do you update plan documents when Section 125
increases their take home        regulations are amended?
pay. Employers benefit
because these pre-tax            Is your Section 125 plan reviewed and serviced annually?
deductions reduce their
                                 Do you provide every employee with the ‘Annual
portion of FICA and FUTA         Notice of Election Change’ form?
taxes.
                                        A ‘No’ answer to any of the above questions indicates that your company
Like most employee                           may be out of IRS compliance and may be subject to IRS fines.
benefit plans, Section125
plans have many federally        Are you 100% satisfied with your Section 125
mandated rules and               services provider?
regulations.




2
Employers, If you do not have a
Section125 plan now...
First, you should determine if it makes economic
sense to implement a Section125 plan.

 The example below illustrates the positive impact Section 125 plan implementation can                                                     Employer
 have on your payroll-related expenses for participating employees:
                                                                                                                                           Estimate of
                                                                                                                                           tax savings:
      For an employee with $400/mo. in qualifying expenses:
                                             (Health and Voluntary Insurance)                                                              Total annual
                                                                                                                                           qualifying Payroll
                                                                                                                                           Deductions for all
    Without Section 125 Premium Only Plan                             With Section 125 Premium Only Plan                                   employees
    Employee Monthly Salary ........................$2,500            Employee Salary after reallocation............$2,100                 (Employee paid
                                                                                                                                           health costs, etc.) $
    Approx. Payroll FICA cost (7.65%) ..........$ 191                 Approx. Payroll FICA cost (7.65%) ..........$ 161
                                                                                                                                           Social Security tax
    Total Payroll Cost ......................................$2,691   Total Payroll Cost ......................................$2,661      (based on
                                                                      Section 125 savings (per mo/Employee) ..$                     30     current 7.65%
                                                                                                                                           ‘matching’)      x .0765

            For a 50-employee company, this could be a savings of $1,500 per month, or $18,000 annually                                    Total annual
                                                                                                                                           employer tax
 NOTE: A majority of states do permit FICA, Federal and State unemployment taxes to also be included in these type of payroll              savings      =$
       related expense savings. So, your actual savings might be higher if you are in a state which permits this.




For your employees, if you do not have a
Section125 plan now...
 This illustration shows how Section125 can increase each employee’s take-home pay.


      For an employee with $400/mo. in qualifying expenses:
                                             (Health and Voluntary Insurance)
                                                                                                                                           NOTE:
                                                                                                                                           Pre-tax deductions could
    Without Section 125 Premium Only Plan                             With Section 125 Premium Only Plan                                   adversely affect an employee’s
                                                                                                                                           Social Security benefits if the
    Employee Monthly Salary ........................$2,500            Employee Salary after reallocation............$2,500
                                                                                                                                           employee does not have
                                                                      Employee Taxable Salary after reallocation ................$ 2,100   taxable wages in excess of the
    Taxes (25% Fed., State, FICA) ..................$(625)            Taxes (25% Fed., State, FICA) ..................$(525)               FICA taxable wage base; or
                                                                                                                                           other benefits based on a
    Health, and other qualifying dollars..........$(400)              Health, Disability, Cancer ..........................$(400)          multiple of salary.
    Spendable Income ....................................$1,835       Spendable Income ....................................$1,935


  This could be an increase of $100 per month in net income, or $1,200 annually for each participating employee
                                                                                                                                                                       3
Executive Summary:

   Section125 Employer benefits
   Section125 can reduce an employer’s Social Security contributions for dollars that the
   employees spend on eligible pre-taxed employee benefits.
   The result is a 7.65% reduction in Social Security contributions on those dollars.




                              Section125 Employee benefits
                              Section125 applies to the dollars that the employees spend on qualified employee
                              benefit deductions. The result is that the dollars are excluded in their taxable income.
                              This reduces Federal Income tax, Social Security contributions, and State tax
                              (where applicable).
                              The result is increased take-home pay.




  Can we help make Section125 work for you?
                                                               Some other voluntary insurance
   Coverages eligible for Section125                           coverages may also qualify*
   The employee-paid portion of premiums for the following:     • Catastrophic Illness Insurance
    • Health Insurance                                          • Specified Disease Insurance such as Cancer
    • Health Indemnity Insurance                                  Insurance
    • Dental Insurance                                          • Hospital Indemnity Insurance
    • Vision Care Insurance                                     • Hospital Income Insurance
    • Prescription Medication Insurance                         • Disability Income Insurance
    • Employer-sponsored group term life insurance              • Accidental Death and Dismemberment
      up to $50,000
                                                               * Benefits paid by an insurer under a disability, cancer and/or other indemnity insurance
                                                                policy may be taxable if the insurance premiums are paid under the POP on a pre-tax basis.




This information is general in nature and is not intended to provide legal or tax advice. For legal or tax advice on what
a Section 125 plan could mean to your particular company, you should consult with your legal and/or tax advisor.

Combined Insurance Company of America does not function as a Section 125 plan sponsor or plan administrator.

CBS-315 (6/06)                                                                                                                                               2790

				
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Description: Section 125 Plan Corporate Resolution document sample