Employees that pay for child care, or participate in the payment of employee benefit premiums, will need this product. Section 125 plans enable employees to pay for certain benefits with pre-tax dollars and employee pre-tax premium contributions saves the employer as well. The advantage to the employee is more disposable income and reduces the taxes they pay. The employee retains all of the tax savings attributable to their participation in these programs. To the employer the advantages are, reduced taxes payable, reduced payroll information, which is used to base workers' compensation premiums.

Flexible Benefits Program

With benefit costs reaching all-time highs, employers are finding it increasingly difficult to provide quality benefits that meet personal, financial, and security needs of their employees. Employers across the country are responding to the benefits dilemma by implementing flexible benefits plans. In fact, according to the Gallup Poll, 90 percent of the people polled claimed they would pick a job that offers a flexible benefits plan over a job that does not.* 

A flexible benefits program is a valuable asset. It is designed to provide support for employers who wish to implement a flexible benefits plan with one or more of the following components:

• Premium Conversion Plan - also referred to in the industry as a Premium-Only Plan (POP)
• Dependent Care Reimbursement Plan
• Medical Reimbursement Plan

The primary objective of these plans is to help meet diverse needs of employees and to contain or reduce benefit costs. An employer's premium conversion plan allows employees to pretax qualified benefits. The employer's dependent care and medical reimbursement plans allow employees to set aside pretax dollars to pay for qualified day care and out-of-pocket medical expenses, respectively.

What is a Flexible Benefits Plan?

Internal Revenue Code (IRC) Section 125 was created by Congress in the Revenue Act of 1978. This section was added to the IRC as a result of changes in the workforce and the rising costs of health benefits. Section 125 allows employers to establish flexible plans under which employees may choose between tax-free benefits and cash. The law was enacted to help make benefits more affordable for employees and to provide them with choices to meet their individual benefits needs.

As an employer-provided program, flexible benefits plans allow employees to pay for certain qualified benefits with pretax dollars. IRC Section 125 currently uses the term "statutory nontaxable benefits" to describe nontaxable benefits offered through a flexible benefits plan. Examples of qualified benefits include:

Accident and health insurance, including spouse and dependent coverage.

• Group term life insurance (employee only).
• Cancer Plans
• Critical illness
• Contributions to a dependent care reimbursement plan.
• Contributions to a medical reimbursement plan.
• 401 (k) plans.
• Long & short term disability

*Nation's Business, July 1991, p.17