Chapter 18
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Chapter 18 . Other Nonretirement Benefits. Can Be Divided in Three Categories. Payments for time not worked Extra payments to employees Services to employees. Meaning of Highly Compensated Employee. Any employee who is

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Chapter 18 l.jpg
Chapter 18

Other Nonretirement Benefits

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Can Be Divided in Three Categories

  • Payments for time not worked

  • Extra payments to employees

  • Services to employees

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Meaning of Highly Compensated Employee

  • Any employee who is

    • A 5-percent owner of the firm or was a 5 percent owner during the previous year

    • Had compensation from the employer in excess of $90,000 (subject to indexing) during the previous year

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Meaning of Highly Compensated Employee (cont.)

  • The following benefits in chapter are subject to nondiscrimination rules and cannot discriminate in favor of highly compensated employees

    • Educational assistance

    • Service awards

    • Safety achievement and productivity awards

    • No-additional-cost services

    • Employee discounts

    • Dependent-care assistance

    • Employee assistance

    • Adoption-assistance programs

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  • Designed to fit employer objectives and competition

  • Usually a waiting period for new employees

  • Usually an increase in benefit for length of service

  • Carryover of unused days may or may not be allowed

  • Taxed as regular income

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  • Number varies by employer

  • Marketing factors and state laws may influence actual holidays taken

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Personal Time Off With Pay

  • Common reasons include

    • Reserve/National Guard duty

    • Jury duty

    • Funeral (bereavement) leave

    • Sabbatical leave

    • Observation of religious holidays

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Personal Time Off without Pay

  • Employers may voluntarily allow this for activities such as honeymoons, extended vacations, education leaves

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Personal Time Off without Pay (cont.)

  • Federal legislation

    • Applies to any employer with more than 50 employees within a 75-mile radius

    • Allows employees to take up to 12 weeks leave for the following

      • Birth or adoption of a child

      • Care for ill family member

      • The employee’s own illness

    • Health coverage must be continued during leave as if the worker were still employed

    • Upon return, employee must get old job back or be given an equivalent job

    • Specific requirements about notification and guidance

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State laws

  • More than half the states require employers (other than small employers) to allow leave for reasons such as birth or adoption of a child and the illness of a family member

  • Must comply with these in addition to federal law

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Uniformed Services Employment and Reemployment Rights Act

  • Gives specific rights to an employee who leaves a civilian job for active military duty

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Supplemental Unemployment Benefit Plans

  • Most common in industries with cyclical unemployment

  • Supplement state unemployment benefits

  • Usually a result of collective bargaining

  • Benefits usually prefunded through a trust financed by employer contributions

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Educational Assistance

  • First $5,250 of benefits can be received tax free each year

  • Eligible expenses are tuition, fees, and books; meals and transportation costs cannot be received tax free nor can assistance for graduate-level courses

  • No tax-free benefits for courses involving sports, games or hobbies

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Moving-Expense Reimbursements

  • Benefits may be for expenses associated with:

    • Moving personal possessions

    • Travel and lodging while searching for and moving to a new home

  • Employer-provided benefits are taxable income but employee who itemizes may take a corresponding deduction

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Suggestion Awards

  • For suggestions that improve firm’s operating efficiency

  • Amount often a function of savings to firm

  • Taxed as regular income

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Service Awards

  • For length of service

  • Usually not of great value (for example: flowers, pens)

  • Not taxable if de minimis

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Productivity and Safety Achievement Awards

  • Productivity awards are taxable income

  • Safety awards are tax free within limits to some employees

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Holiday Bonuses and Gifts

  • Usually small amounts

  • Gifts are tax free if value is small

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No-Additional-Cost Services

  • Services like lodging and transportation that are sold to public in ordinary course of business

  • Not taxable to employees if

    • Nondiscriminatory

    • No significant additional cost or lost revenue to employer

    • Services are in employer’s line of business in which employee works

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Employee discounts

  • Generally not taxable if provided on nondiscriminatory basis

  • Not allowed on tax-free basis for purchases of investment property such as securities or real estate

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Dependent-Care Assistance

  • Increase in use and very popular among employees with children

  • Most plans cover child care

  • Some plans cover eldercare

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Dependent-Care Assistance (cont.)

  • Tax-free within limits

    • $5,000 for single person and married persons filing jointly; $2,500 for married person filing separately

    • Only for children under 13 or for dependent who is unable to care for himself or herself

    • Only for dependent care; not for school costs above kindergarten

    • Special rules apply to highly compensated employees; if not met, they cannot get benefits, but other employees are unaffected

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Adoption Assistance

  • Covers various costs associated with adoption

  • Up to $10,390 per child (subject to indexing) can be received tax free under a qualified program

  • Tax-free benefit is phased out at higher income level

  • Qualified expenses include adoption fees, court and attorney’s costs, and travel and other expenses related to adoption

  • Expenses paid to adopt a spouse’s child or for surrogate parenting arrangements are not qualified expenses nor are expenses to adopt a child with special needs unless the adoption becomes final

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Wellness Programs

  • Purpose is to promote well-being of employees and dependents

  • Medical screening programs

    • Sometimes limited to select groups of employees, possibly in form of complete physical

    • Most often in form of screening for conditions that an be discovered in a cost-effective manner (for example: blood pressure, cholesterol, breast cancer); however, programs may also focus on back problems and drug and alcohol abuse

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Wellness Programs (cont.)

  • Lifestyle management programs

    • Aimed at encouraging persons to change behavior and lead more healthy lives

    • Many programs aimed primarily at minimizing cardiovascular conditions; these programs focus on fitness, weight reduction, nutrition, smoke cessation, and stress management

    • Most effective if designed to also include family members

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Employee-Assistance Programs

  • Aimed at helping employees with specific problems (for example: alcohol or drug abuse, marital, and financial difficulties, legal problems)

  • Treatment can minimize ultimate medical costs as well as missed work

  • Proper treatment should be provided by a skilled professional

  • Employee will have taxable income if treatment is for a nonmedical condition

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Financial-Planning Programs for Executives

  • Traditionally for top executives but being expanded to middle management

  • Usually done on individual employee basis

  • Components, one or more of which may be provided

    • Compensation planning

    • Preparation of tax returns

    • Estate planning

    • Investment planning

    • Insurance planning

  • May be provided by outside firm or employees of the employer

  • Generally taxable income to employee but some offsetting deductions may be allowed for tax and investment advice

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Preretirement-Counseling Programs

  • Focus is on group, not individual, counseling

  • Types

    • Financial planning

    • Other aspects of retirement such as living arrangements, health, and leisure time

  • May be provided by employer, but often provided by outside organizations

  • Tax-free to employees as long as no specific services provided on an individual basis

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Transportation/Free Parking

  • Forms

    • Free parking

    • Reimbursement for commuting expenses

    • Van pooling

  • Favorable tax treatment is available within limits if certain requirements are met

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Company Cars

  • Tax free if used for business use

  • Personal use results in taxable income, but there are alternatives for determining value

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Subsidized Eating Facilities

  • Can minimize prolonged lunch periods

  • Free meals are tax free if provided for convenience of employer