From: Staffing

A retirement plan has many benefits for an employer, for an organization, and for employees. Retirement plans allow investing in the future now for financial security when an employer and employees retire. As a bonus, an employer and employees get significant tax advantages and other incentives.

Employer Benefits

There are several benefits to the employer for setting up a retirement plan, as follows:

• Employer contributions are tax deductible.
• Assets in the plan grow tax-free.
• Assets grow with compounding interest.
• Employers may receive tax credits and other incentives for starting a plan.
• A retirement plan can attract and retain better employees and consequently reduce new employee training costs.

Employee Benefits

Retirement plan benefits to the employee include the following:

• Tax on employee contributions is deferred until distributed.
• Investment gains in the plan are not taxed until distributed.
• Retirement assets can be carried from one employer to another.
• Contributions can be made easily through payroll deductions.
• Saver’s Credit is available.
• Flexible plan options are available.
• Better financial security is available upon retirement.

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Fringe Benefits

Perquisites

While all employees are usually eligible for benefits such as health and other insurance, retirement plans, and leave, employers may want to consider offering the following additional fringe benefits or perquisites to some or all of their employees:

• Financial and compensation benefits:
  • Accident insurance.
  • Auto insurance program.
  • Automobile allowances for business use of personal vehicles.
  • Business cell phone or handheld device for personal use.
  • Company-owned car for employee use.
  • Credit counseling service.
  • Credit union.
  • Donations for participation in charitable events.
  • Educational assistance for employees.
  • Educational assistance for members of employees’ families.
  • Employee computer purchase discounts (not a loan).
  • Employee discounts on company services.
  • Employee referral bonus.
  • Financial/investment advice offered in a group/classroom.
  • Financial/investment advice offered one-on-one.
  • Financial/investment advice offered online.
  • Free computers for employees’ personal use.
  • Free or discounted home Internet service.
  • Life insurance.
  • Life insurance for dependents.
  • Loans for employees to purchase personal computers.
  • Loans to employees for emergency/disaster assistance.
  • Low- or no-interest loans to employees for non-emergency situations.
  • Matching employee charitable contributions.
  • On-site parking.
  • Payroll advances.
  • Personal tax services.
  • Service anniversary award.
  • Transit subsidies.
• Employee services benefits:
  • Career counseling.
  • Certification/recertification fees.
  • College/school selection/referral.
  • Concierge services.
  • Cross-training to develop skills not directly related to the job.
  • Dry cleaning services.
  • Employer-sponsored personal shopping discounts.
  • English as a second language (ESL) classes.
  • Executive club memberships.
  • Foreign language classes.
  • Free coffee.
  • Free/discounted uniforms.
  • Legal assistance/services.
  • Mentoring program.
  • Off-site professional development opportunities.
  • On-site ATMs.
  • On-site cafeteria.
  • On-site haircuts.
  • On-site professional development opportunities.
  • Organization-sponsored sports teams.
  • Pay cards.
  • Pet health insurance.
  • Postal services for employees.
  • Prepared take-home meals.
  • Professional development opportunities.
  • Professional license application or renewal fees.
  • Professional memberships.
  • Self-defense training.
  • Travel planning services.
  • Vending machine snacks and beverages.
• Business travel benefits:
  • Additional pay for weekend travel.
  • Business laptop for personal use while on travel.
  • Car or limo service to/from the airport.
  • Employee keeps frequent flyer miles.
  • Employee keeps hotel points.
  • First or business class airfare for domestic travel.
  • First or business class airfare for international travel.
  • Paid airline club membership.
  • Paid child care expenses while employees are on business travel.
  • Paid dry cleaning while on business travel.
  • Paid health club fees while on travel.
  • Paid Internet access while on travel.
  • Paid long-distance calls home while on business travel.
  • Paid minibar snacks at the hotel.
  • Paid pay-per-view movies at the hotel.
  • Paid pet care expenses while employees are on business travel.
  • Paid travel expenses for spouse.
  • Per diem for meals.
  • Rental car upgrades.
  • Travel accident insurance.
• Other benefits:
  • Community volunteer programs.
  • Company picnic.
  • Company-purchased tickets.
  • Discount ticket services.
  • Milestone rewards.
  • Noncash, companywide performance awards.
  • Pets at work.
  • Take your child to work day.
  • Take your parent to work day.
  • Take your pet to work day.

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Further Considerations

Communications

Once an employer has implemented a benefits program, the employer will want to inform employees about it. Good communications are important in enabling employees to use the plan effectively and to appreciate the role of benefits in their total compensation.

Benefits orientation should be part of the orientation of a new employee. An employer can use newsletters, staff memos, or employee meetings with audiovisuals to announce plan changes or answer employees’ questions.

Keeping Current on Benefit Plans

Businesses should continually monitor changes in legislation to make sure their benefits programs are compliant with local, state, and federal laws. Health care reform law in particular will affect how all organizations administer health care benefits. This new law is extremely complex, and some of its parts have already been executed, while others will be implemented over the next several years.

Tax Considerations

Before beginning any program of perquisites, employers should check current federal and state tax laws for treatment of each of the following items:

• Can the employer deduct it as a business expense?
• Will it become taxable income for an employee?

Guide to Fringe Benefits

The following material provides an introduction to these issues. They are addressed authoritatively and in detail in IRS Publication 15-B: Employer’s Tax Guide to Fringe Benefits.

Taxation of Fringe Benefits

The general concept of taxable compensation under the Internal Revenue Code is that any payment of cash or “in-kind” property by an employer to or on behalf of an employee is subject to income and withholding taxes. Certain exceptions apply, including exceptions for “nontaxable fringe benefits.” Nontaxable fringe benefits are generally excluded from income if they meet the requirements set out in Section 132 of the Code. The five general types of fringe benefits that are excluded from income under Section 132 of the Code are:

• No-additional-cost services.
• Qualified employee discounts.
• Working condition fringes.
• De minimis fringes.
• Qualified Transportation fringes.

No Additional Cost Services

These are services made available to employees by an employer who generally offers the same services for sale to its customers in the ordinary course of the employer’s line of business, provided that the employer incurs no substantial additional cost (including foregone revenue) when it provides such service to the employee. Any amount paid by the employee for the service is disregarded when measuring whether there was any substantial additional cost to the employer.

In other words, the employer must have excess capacity that cannot be filled. Examples include free airline transportation, free hotel rooms, and free long distance telephone use. The service offered must normally be sold to customers. Thus, only the airline could offer a program of free air transportation. If a hotel had extra airline seats it was unable to use, giving those to employees would not be a “no-additional-cost service” because the hotel is not generally in the business of selling air tickets to its customers. Similarly if a seller of real estate has a 1-800 telephone number, use of the number by its employees would not be a “no-additional-cost” service to its employees, while free long distance telephone service by a long distance telephone company at nonpeak times would be such a service.

Qualified Employee Discounts

A qualified employee discount is an employee discount on property or services which are offered for sale to customers in the ordinary course of the employer’s line of business in which the employee works. The discount must not be greater than the employer’s gross profit percentage when the product is sold to customers. For services, the discount must not be greater than 20 percent of the price at which it is offered to customers.

Thus, an appliance store might offer employees a discount on refrigerators and stoves, up to the gross profit it makes on customer sales.

Working Condition Fringe Benefits

Any property or service which could be provided to an employee and deducted by the employer under Section 162 or 167 of the Code can be excluded from an employee’s income as a working condition fringe benefit. Any substantiation requirements required for a deduction would apply. The benefits must be received because of employee status.

Commonly provided working condition fringe benefits include employer-paid parking, use of company cars, travel cost reimbursement, employee security devices and protections and tuition reimbursement arrangements.

De Minimis Fringe Benefits

If the value of an item of property or of a service is so small, considering its frequency, that accounting for it is unreasonable or administratively impractical, it can be given to an employee as a de minimis fringe benefit. Examples include employee picnics or cocktail parties, traditional holiday gifts (if not cash), occasional tickets to sporting events or to the theater, coffee and doughnuts, lunch, and occasional personal typing or use of the copy machine. Gift certificates may be de minimis fringes, but specific rules apply to them.

The frequency of such employee gifts is measured person by person, not as to all employees as a group. If one employee is given a free meal every day, and other employees receive them only occasionally, that individual could not have the value of the meals excluded as a de minimis fringe benefit, though other employees who received them only occasionally could. Employer provided eating facilities may be de minims fringes if certain standards are met.

Qualified Transportation Fringe Benefits

The employer may also assist employees in transportation to and from work and exclude the value of such a benefit from the employees’ taxable income. A qualified transportation fringe includes a transit pass for the use of mass transit facilities such as bus, rail, or ferry. It also includes transportation in a commuter highway vehicle (e.g. a commuter van) and parking for employees at or near the employer’s workplace or near a location from which the employee commutes to work by mass transit. Cash reimbursements can be used for parking costs, commuter van costs, and for transit passes. Qualified transportation benefit plans can be offered on a salary reduction basis, so that employees pay the cost of the benefit with pre-tax dollars.

Additional Fringe Benefits

Employer Provided Meals

Section 119 of the Code excludes from an employee’s income the value of meals or lodging for the convenience of the employer. Excludable meals must generally be furnished on the employer’s premises. To be excludable the employer must require as a condition of employment that employees eat on-site. For example, the staff in a group home for physically disabled or mentally retarded individuals might be required to eat at the facility for the protection and assistance of its residents. Meals provided by the employer under this requirement would be excludable from the employee’s income.

Employee Awards

Generally, gifts made by an employer to an employee are deemed to be compensation and subject to tax. However, there is an exception for certain achievement awards. Awards are not includible in income if a deduction is available to the employer for such achievement or safety awards. An award must not exceed the limits of certain annual limits per year per employee and must be items of tangible property (no cash permitted) which is awarded in a meaningful presentation. It must not give the appearance of being disguised compensation. The award must be a regular practice and must recognize particular achievement.

Educational Assistance Programs

Section 127 of the Code allows an employer to provide educational assistance to its employees up to $5,250 per employee per year. It can also cover education of spouses and dependents. Several conditions apply to educational assistance programs under Section 127 of the Code:

• Educational assistance programs may pay directly, or more commonly, reimburse, an employee for the cost of tuition, fees, books, and supplies. However, supplies such as tools or computers which are retained by the employee after completion of study which are used in employment are not covered under this program.
• Meals, lodging or transportation for educational programs cannot be reimbursed.
• The program may not offer a choice of cash or educational assistance or be part of a flexible benefit plan.

Tuition Reimbursement

Even when not part of an educational assistance program, an employer may reimburse employees for the costs of education which can enable an employee to better perform his or her job. This can cover tuition fees, books, and expenses for transportation, lodging, and meals. Tuition reimbursements under Section 162 of the Code must be ordinary and necessary business expenses and may not cover courses which equip or train an employee for a different job.

Adoption Assistance

An adoption assistance program established under Code Section 137 can be offered as a flexible spending account through a cafeteria plan, or it can be offered outside a cafeteria plan arrangement. An adoption assistance flexible spending account may be funded by the employer, by the employee, or by both on a pretax basis. Through an adoption assistance program, employees may exclude from gross income reimbursements made for their expenses relating to adopting a child.

Long Term Care Insurance

A qualified long-term care insurance contract is treated just like an accident and health insurance contract. In other words, eligible long-term care insurance premiums that do not exceed specified limits will be treated as medical expenses for purposes of the medical expense deduction under Section 213 of the Code. In addition, an individual who is covered by a qualified long-term care insurance contract is not taxed on employer premiums for insured long-term care coverage. Amounts received under a long- term care insurance contract, up to certain limits, will be excluded from an individual’s income as amounts received for injury or sickness.

Accountable Plans

Reimbursement of expenses incurred in the performance of services for the employer are excludable from income provided that the employee is required to account to the employer for such expenses. For example, in the case of use of a personal automobile for work an employee may exclude from income any monthly allowance for automobile expenses, provided that the employee has accounted for actual expenses. If there is no requirement that the employee account for expenses in order to receive an allowance, the employee must declare it as subject to income tax.