Employee benefits plans offer a number of business advantages to you. Depending on the type of plan or plans you select, you can accomplish a wide array of objectives.
Note: Keep in mind throughout this section that, as stated in the introduction, the chief benefit of all employee benefits plans is to attract, retain, and motivate the employees of your business.
Qualified plans offer a unique tax savings to employers and employees. Typically, an employer gets a deduction on wages paid to employees when the wages are actually paid. You cannot, for example, take a deduction this year on next year’s wages. However, with a qualified plan, you can do just that. Qualified plans allow employers to take current year deductions on plan contributions despite the fact that employees will not recognize the income on those contributions for many years. Many employers take advantage of this tax benefit in their plan design and administration, creating plans which not only benefit employees, but also assist employers in tax planning.
This incredible advantage also illustrates the necessity of proper plan compliance because noncompliance can result in plan disqualification. If a plan is disqualified, the employer will be deemed to have taken improper deductions, and the employees will recognize income immediately on their retirement savings. Needless to say, plan disqualification wreaks havoc on a business and must be avoided by ensuring that both plan documents and plan administration are always in compliance with the latest government regulations.
Note: To avoid plan disqualification (by way of example, for handling a part-time or independent contractor employee wrong), and because of the intensive nature of this area of law, your company should rely on a benefits attorney for this important tax and regulatory advice; although your CPA or other counsel is very competent at other areas of practice, benefits planning is a specialized field. Using a benefits attorney is an affordable way to avoid an expensive problem later.
Nonqualified deferred compensation arrangements, on the other hand, do not offer employers this tax advantage. Employers can take deductions only when they actually pay the employee. Typically, however, the purpose of attracting, retaining, and motivating key management and executive figures outweighs the lack of this advantage.
Health and welfare plans do not usually require funding, but some funded arrangements can receive this tax benefit.
Employee benefits can be used for greater business objectives as well. Certain benefits can be used in succession planning or mergers of small businesses, for instance. Perhaps an executive will receive a nonqualified deferred compensation package as part of a retirement and exit strategy over the next 3 years, or a business owner will sell his business through the use of an ESOP, a qualified plan. When creating an employee benefits plan with the Ratliff Law Firm, we will work to identify overarching business goals and objectives and counsel you on how these objectives might be accomplished through the use of an employee benefits plan, if possible.
Finally, and quite importantly, employee benefits plans greatly assist in later-life wealth and estate planning. Funding of employee benefits now can greatly assist executives and small business owners in how they manage wealth both for their post-retirement days and beyond. With the Ratliff Law Firm’s dual expertise in employee benefits and estate planning, we can advise you effectively on the options available to you that will best benefit both your employees and your family.