Lisa Buonocore EDET 709 Big Redesign

Narration:
Welcome to the second lesson in the Basic Flexible Benefits Plan training series. This lesson is the Positioning POP to the Employer (sometimes referred to as the decision maker). Understanding how to position Premium Only Plans to an Employer will help you close more accounts because it allows you to explain the value of pre-taxing to a companys bottom line in dollars and cents. Which means to you; that you wont have to rely on your manager or the Home Office to explain this value added service. And the real benefit to you is that youll be more confident knowing that you are able to assist employers with their pre-taxing needs. It is recommended that you have already gone through Lesson One in this series Introduction to Flexible Benefits Plans with a focus on POPs. If you have not already reviewed that lesson, please return to the menu and select Lesson One. Click the next button to start the training.

Lisa Buonocore EDET 709 Big Redesign

Narration:
The purpose of this training is to help you understand how to best position this value added service with an employer. By the end of this lesson, you will be able to: Communicate the concept of pre-taxing Understand the trade-offs of Section 125 Determine how we can help an employer manage costs through tax savings Determine how to set up a new Premium Only Plan or amend an existing Premium Only Plan Demonstrate how to apply what you learned during your conversation with the employer

Lisa Buonocore EDET 709 Big Redesign

Narration:
Many employers may question why an insurance company should be involved in their Premium Only Plan . If this question arises regarding the companys involvement, use the following (on the slide) points. We specialize in providing employees with voluntary employee benefits, including enrollment in Premium Only Plan. We can help make an employers Premium Only Plan a success through group meetings, 1 to-1 benefits counseling sessions, and streamlined communication and enrollment procedures. We can provide a source for Premium Only Plan administration services to employers at no cost to them when they offer our voluntary insurance products to their employees. We provide employee communication as required under IRS tax codes.

Lisa Buonocore EDET 709 Big Redesign

Narration: As discussed in Lesson 1, the terms "cafeteria plan, flex plan, and section 125 plan are all words used to describe a flexible benefits plan. Flexible benefits plans include POP, FSA, HSA, DFSA and HRA. In this lesson we will go into more detail on Premium Only Plans and how to position them to an employer. Premium Only Plan: Allows employees to have their portion of the life and health insurance premiums deducted from their pay on a pre-tax basis. Flexible Spending Account: This benefit account allows participants to set aside pre-tax dollars to pay for certain types of qualified medical expenses. Health Savings Account: A tax-advantaged account that allows participants to set aside pre-tax funds to pay for qualified medical expenses incurred by the participant, their spouse, and any tax dependents covered under the participants qualified high-deductible health plan (HDHP). Health Reimbursement Account: Employers fund individual reimbursement accounts for their employees and define what those funds can be used for (e.g. specified out-of-pocket expenses such as deductibles and co-pays).

Lisa Buonocore EDET 709 Big Redesign

Narration: Lets look at the benefits and trade-offs of a Premium Only Plan. The employer benefits include: Enhancing the employers current benefits program as it offers additional choices to meet the individual needs of the employees. Making benefits more affordable for employees through preferred tax treatment. And finally, reducing an employers payroll taxes. These benefits to pre-taxing help an employer attract and maintain quality employees through a well rounded benefits package. And of course, what employer doesnt like the idea of adding to their bottom line by saving taxes? So the employer wins with a Premium Only Plan ! There are also some trade-offs to implementing a Premium Only Plan for the employer. The trade-offs include potential cost considerations, implementing payroll deductions, and eligibility. The potential cost considerations includes fees paid to a lawyer or professional tax advisor, third-party administrative services fees, and the cost of updating the payroll system to accommodate pretax deductions. Although the plan is the employers plan, some insurance companies (ourselves included) can help provide the employer with the communication support and documentation required to implement the flexible benefits plan. There are some restrictions on certain business owners eligibility in the plan. You will learn more about eligibility later in this lesson.

Lisa Buonocore EDET 709 Big Redesign

Narration:
Lets start at the beginning. You should first understand payroll taxes in order to effectively position the benefits of a Premium Only Plan to an employee and employer. The addition of a Premium Only Plan to a companys employee benefits program has the potential to save tax dollars for the employer and the employees.

To understand and appreciate the benefit of adding a Premium Only Plan, you must understand the basics of payroll taxes. This illustration shows the payroll taxes that are typically paid by an employee and an employer.
First lets look at FICA which is Social Security taxes. FICA is short for the Federal Insurance Contributions Act and is paid at 7.65 percent by both the employee and employer for a total of 15.3%. The employer matches the employees FICA payment. The employee is responsible for paying Federal income tax and State income tax. These of course vary by the employees individual situation and by the state in which they reside. The employer is also responsible for federal and state unemployment tax (FUTA and SUTA).

Lisa Buonocore EDET 709 Big Redesign

Narration:
Now, how much can an employer really save through tax savings? This example is a good one to have ready during an employer presentation to show the value of the matching FICA savings based on the number of employees. This example shows that an employee pays $500.00 per month for their health insurance. Over the course of a year that adds up to $6,000. The FICA taxes on that $6,000 is 7.65% or $459 a year. If the $500 was paid on a post-tax basis, meaning it was paid for after taxes were taken out, then both the employee and employer would pay taxes on that amount. However, because the premium is taken from the employees paycheck BEFORE taxes are taken, then the $500 is not included in the tax calculation. That means on that $6,000 the employee saves $459 in FICA taxes and the employer matches with a $459 FICA savings.

If the employer had 5 employees, that would mean a savings of $2,295 a year in matching FICA taxes. If they had 20 employees they would save $9,180. You can see how the savings can add up as we add more employees. Keep in mind that this is not a one time savings for the employer they will save this each year. In fact, as employees add additional benefits that qualify to be pre-taxed, like many of our products, that savings will actually increase as more premium dollars are pre-taxed. This is a win for the employer!

Lisa Buonocore EDET 709 Big Redesign

Narration:
Here is another way to look at it for the employer. This illustration shows the win for the employer from an annual payroll perspective. In the example, lets assume the employer has 25 employees, pays an annual payroll of $500,000. Each employee pays $500 per month for insurance benefits ($500 x 25 employees x 12 months = $150,000 per year in employee benefit contributions). By adding a Premium Only Plan, the employer is not required to pay their matching share of FICA on the amount employees pay for benefits on a pretax basis and can potentially realize a tax savings of $11,475 annually. This $11,475 in tax savings goes right to the employers bottom line as pure profit.

Lisa Buonocore EDET 709 Big Redesign

Narration: Moving from post tax to pre tax involves a simple bookkeeping entry change. However, in order for an account to implement a premium only plan (POP), they must have a payroll system that will allow for a change to be made in the software package. Employers may need to contact the person responsible for making changes to their payroll system before they implement the plan. If an employer currently offers a 401(k) plan, the system should already be designed to take pretax deductions. Now - when communicating the concept and value of pre-taxing to an employer it is usually necessary to explain the impact of pre-taxing to their employees. When explaining to the employer how a premium only plan works; simply demonstrate the before and after effect on an employees paycheck. Then, discuss how pre -taxing benefits lowers an employees FICA deductions as well as the employers matching FICA amount. This is where it would be a great opportunity to position voluntary benefits to the employee with their added take home pay. We will go into more detail on this in Lesson 3, Positioning to the Employee.

Lisa Buonocore EDET 709 Big Redesign

Narration: While there are many advantages to a Premium Only Plan for an employer, there are also tradeoffs they need to be aware of. Some business owners and their families are not eligible for a Premium Only Plan. This is important since many small businesses are family owned. Section 125 was designed to assist the average American worker to benefit from the preferential tax treatment. To ensure compliance with the requirements of Premium Only Plans, all employees should be eligible to participate in the plan. Exceptions should be stated in the plan document and must follow the regulations established by the IRS. These exceptions should be made only on advice from the employers legal counsel. The term employee does not include self-employed individuals or 1099 workers. If it is a Sole Proprietorship the owner, their spouse and legal dependents do not qualify to participate. If the owners spouse or legal dependent is an actual employee who is on the payroll, they may qualify. All other employees qualify to participate. If the company is a Partnership the partners, their spouses and legal dependents do not qualify to participate. If the partners spouses or legal dependents are actual employees who are on the payroll, they may qualify. All other employees qualify to participate.
[Facilitator Notes Only: Definitions Sole Proprietorship. Business or financial venture that is carried on by a single person and is not a trust or corporation. A sole proprietor (sole owner) has unlimited liability. Schedule C of Form 1040 is used to report income and expenses of a sole proprietorship. Partnership. Association of two or more persons or entities that conduct a business for profit as co-owners. Except in the case of the limited liability partnership, which shares with the corporation the characteristic of being treated as a single entity whose members have limited personal liability, a partnership is traditionally viewed as an association of individuals rather than an entity with a separate and independent existence. A partnership

10

Lisa Buonocore EDET 709 Big Redesign

cannot exist beyond the lives of the partners. The partners are taxed as individuals and are personally liable for torts and contractual obligations. Each is viewed as the agent of the others, and traditionally all are jointly and severally liable for the tortious acts of any partner. ]

10

Lisa Buonocore EDET 709 Big Redesign

Narration: If the company is a Subchapter-S Corporation 2% or more stockholders, spouses, legal dependents, and attributed owners do not qualify to participate in the Premium Only Plan. All other employees do qualify to participate. If the company is a Corporation the shareholders, as long as they are employees, and all other employees qualify to participate. There are some companies that may be classified as Limited Liability Companies. As a result, the members/owners of an LLC cannot generally participate in a Premium Only Plan.
[Facilitator Notes Only: Definitions Subchapter-S Corporation. A corporation with a limited number of stockholders (75 or fewer) that elects not to be taxed as a regular corporation, and meets certain other requirements. Shareholders include, in their personal tax return, their pro-rata share of capital gains, ordinary income, tax preference items, and so on. Corporation. Legal entity that is created by the authority of a governmental unit and that is separate and distinct from the people who own it.A corporate has two major characteristics that set it apart form a sole proprietorship and a partnership: (1) a corporation is a legal entity that is separate from its owners. The corporations debts and liabilities belong to the corporation, not the owners. Corporations can sue or be sued, can enter into contracts, and can own property. (2) a corporation continues beyond the death of any or all of its owners. Limited Liability Company: Many states provide for the establishment of limited liability companies (LLCs). LLCs allow employers many of the advantages of corporate statuslimited liability, transferability of interest, etc. with the potential advantage of being treated as a partnership for tax purposes. As a result, the members/owners of an LLC cannot generally participate in a Flexible Benefits Plan. In some rare cases an LLC may be treated as a corporation for tax purposes. In such cases, the members/owners may be eligible to participate in a Flexible Benefits Plan, provided the corporation is not a subchapter-S corporation. All other employees who are not owners should be qualified to participate; however, the determination of eligibility is the sole responsibility of the plan sponsor. ]

11

Lisa Buonocore EDET 709 Big Redesign

Narration:

The employer is the plan administrator and plan sponsor of their Premium Only Plan. The employer has the sole responsibility to comply with all plan compliance by law. These include but are not limited to the following: Reviewing the plan documents provided by AmeriFlex with tax or legal counsel; executing the plan before the first day of the plan year; and distributing the Summary Plan Description to employees on or before their enrollment date. Conducting initial and annual enrollments. We will assist the employer to make sure that all eligible employees are properly informed during each enrollment period as well as new employees as they become eligible. Ensuring that benefits offered under the plan qualify for inclusion in a Premium Only Plan. Determining whether election changes are allowed based on the provisions of the plan and Internal Revenue Code requirements. Performing nondiscrimination testing required by the Internal Revenue Code. We do not perform nondiscrimination testing. To enjoy the tax benefits of a Premium Only Plan, the IRS Code requires that the plan is not discriminatory. This means that a Premium Only Plan cannot favor highly compensated or key employees as discussed in the previous slide. If the employer chooses to use AmeriFlex for his Premium Only Plan administration, AmeriFlex provides an online tool to help the employer conduct discrimination testing. For more information on discrimination testing, reference the ePOP Implementation Guide on AmeriFlexs ePOP portal. You can access the AmeriFlex ePOP portal through Propr. If the employer does not choose AmeriFlex POP plan administration, it should refer to its tax advisor for assistance. Filling an annual Form 5500 return for each qualified benefits under the POP plan within seven months after the end of each plan year if the plan is subject to ERISA filing requirements. If employers have questions about ERISA, we encourage them to seek advice from their attorneys concerning the applicability of ERISA to their specific situation. Employers can obtain certain information needed from us to complete their Form 5500, Schedule A, by calling us at 1-800-256-7004 and requesting Schedule A information. Retaining plan documentation that may be requested in an IRS or Department of Labor audit. This may include nondiscrimination testing information, copies of the plan documents, a description of each eligible benefits,

12

Lisa Buonocore EDET 709 Big Redesign

Salary Reduction Election forms, and plan amendments, for seven years after the close of each plan year.

12

Lisa Buonocore EDET 709 Big Redesign

Narration:
When an employer decides to adopt a Premium Only Plan, the sales representative has certain responsibilities as well, including: Completing and submitting the Flex Plan Supplemental Form to the Home Office. Completing and submitting the AmeriFlex Online Application before starting the enrollment. The Premium Only Plan documents must be signed prior to the start date of the plan year to be compliant. Notifying employees of the upcoming enrollment. This can be done a number of different ways depending on what the employer will allow and the working conditions of the business. The most common is a poster or flyers in the break room announcing the upcoming enrollment. Delivering and reviewing the plan documents with the employer at least three weeks prior to the enrollment. This gives the employer time to have the documents reviewed by legal and tax experts. AmeriFlex will send them electronically, but it is a good practice to make sure the employer receives them and offer to review them if needed. Reviewing the employers responsibilities. It is recommended that you ensure that they understand their role and responsibilities regarding a Premium Only Plan. Preparing all laptops, enrollment forms, brochures, and any other materials needed for the enrollment.

13

Lisa Buonocore EDET 709 Big Redesign

Narration:
Lets take a moment and talk about our partnership with AmeriFlex. Through our partner AmeriFlex, we will assist in providing all the required documents for a Premium Only Plan. These include: A Plan Document An Adoption Resolution Agreement A Summary Plan Description Non-Discrimination testing POP enrollment form for products that are not ours We will also assist the employer by informing all eligible employees about the POP that their employer is providing. All of these documents and services are provided at no charge to qualified employers. To qualify for POP administration through AmeriFlex, a minimum of $1,800 in annualized premium must be written each year. These requirements must be maintained for us to continue providing this value added service for the employer year after year. If premium falls below $1,800 during a given year, we will no longer pay for this service and the employer will receive a letter and invoice directly from AmeriFlex asking if they want to continue receiving POP plan support. The charge for this service is $175 per year.

14

Lisa Buonocore EDET 709 Big Redesign

Narration: During your discovery with an employer, you must first determine if they already pre-tax their benefits and have a POP in place or if they could benefit from this service. If they do not have a POP in place and would like to set one up the first step you must take is to complete the Flex Plan Supplemental Form and submit it to Account Services with the other the New Account Paperwork. For details on each point in the Flex Plan Supplemental Form you can reference the Agent User Guide located at the end of this lesson. The second step you must complete is ordering the Plan Document from AmeriFlex. To access the AmeriFlex ePOP Portal and receive the free Premium Only Plan administration you must: Log onto the AmeriFlex ePOP Portal website through the link on Propr. Then follow the instruction listed on Propr to order the Plan Document. There are also additional resources on Propr to help you with this process including: AmeriFlexs ePOP Data Requirements Form to help you gather the information you need to order a plan document. A Webinar that will take you through the step-by-step instructions to ordering the plan document on the ePOP Portal.

15

Lisa Buonocore EDET 709 Big Redesign

Narration: Dr. Emmett Brown opened a pediatric practice three years ago and now has 14 employees. He currently offers health insurance to his employees on a post-tax basis. As you meet with him, you explain that he and his employees can save money through tax savings if the benefits are pre-taxed through a Premium Only Plan. Hes interested in learning more about what Premium Only Plans entail. How would you explain the pros and cons of Premium Only Plans to Dr. Brown?

Lisa Buonocore EDET 709 Big Redesign

Narration: First, you can show him the illustration of how much money he could save using the example on the POP Employer Topic Sheet. On the topic sheet, 15 employees who pay $500 pre-tax towards their monthly insurance premiums, can save the employer $6,885 in annual matching FICA taxes. Ask Dr. Brown if this is something that might be of interest to him.

Since Dr. Brown is a sole proprietor of his practice, ensure he understands that he and his family (unless the family members are employees) are not able to pre-tax under IRS code. Ensure Dr. Brown understands his responsibilities in administering a POP plan. Does he have an attorney or tax consultant who can help him?
Explain to Dr. Brown that because of our relationship with AmeriFlex, we will pay for the administration of the POP requirements only if we receive a minimum of $1,800 in annual premium. AmeriFlex offers the following services to employers to help them stay in compliance with IRS tax codes: Plan Document An adoption resolution agreement Summary Plan Description POP enrollment forms for products that are not ours Non-discrimination testing

Lisa Buonocore EDET 709 Big Redesign

Narration: At this point, is Dr. Brown is willing to move forward with a Premium Only Plan? If yes, then you would review and complete the Flex Plan Supplemental Form with him, as well as AmeriFlexs ePOP data requirements form so you can order the Plan Document on his behalf.

Lisa Buonocore EDET 709 Big Redesign

Narration: Dr. Jean Williams opened a pediatric practice three years ago and now has 14 employees. She currently offers health insurance to her employees on a pre-tax basis with a Premium Only Plan administrator other than AmeriFlex. Ask Dr. Williams how much she pays to his POP administrator. (Typically costs range from $200 - $700/year.)

Lisa Buonocore EDET 709 Big Redesign

Narration: Explain to her that because of our relationship with AmeriFlex, we will pay for the administration of the POP requirements only if we receive a minimum of $1,800 in annual premium. AmeriFlex provides the following services to employers to help them stay in compliance with IRS tax codes: The Plan Document An adoption resolution agreement Summary Plan Description POP enrollment forms for products that are not ours Non-discrimination testing

Lisa Buonocore EDET 709 Big Redesign

Narration: At this point, is Dr. Williams is willing to move forward with a Premium Only Plan? If yes, then you would review and complete the Flex Plan Supplemental Form with her, as well as AmeriFlexs ePOP data requirements form so you can order the Plan Document on her behalf.

Lisa Buonocore EDET 709 Big Redesign

Narration: We have many excellent resources and tools when it comes to Premium Only Plans. All of the marketing materials can be ordered and shipped to you and many can be printed right from Propr. On the screen you see several Internet links where you will find all the information about our partnership with AmeriFlex, as well as many useful forms and processes. Please take the time to review all the information you can about Section 125 and Premium Only Plans. On Propr: FPSF User Guide AF Implementation Guide ePOP ordering webinar ER topic sheet

22

Lisa Buonocore EDET 709 Big Redesign

Narration: Congratulations, you have completed Lesson 2 of the Basic Flexible Benefits Module, Positioning Premium Only Plans to the employer.

23