1

Bringing Dollars to Bringing Dollars to the Bottom Line the Bottom Line Through a Better Through a Better

Benefits StructureBenefits Structure

2

What We Will CoverWhat We Will Cover

How the Federal Government is How the Federal Government is rewarding small business for adding a rewarding small business for adding a full portfolio of benefits. Even if the full portfolio of benefits. Even if the employees pay for them.employees pay for them. Health InsuranceHealth Insurance Voluntary Worksite BenefitsVoluntary Worksite Benefits RetirementRetirement

How your business can use the new How your business can use the new laws and regulations to its advantage.laws and regulations to its advantage.

3

What We Won’t CoverWhat We Won’t Cover

Details of health insurance Details of health insurance regulations.regulations.

Possible future changes to current Possible future changes to current laws.laws.

4

DisclaimerDisclaimer

All of the tables, graphics and calculations in this All of the tables, graphics and calculations in this presentation are examples and illustrations. presentation are examples and illustrations. They are not reflective of past or future They are not reflective of past or future performance for any actual business and are performance for any actual business and are not a replacement for professional assistance not a replacement for professional assistance from a financial planning professional, an from a financial planning professional, an accountant, and/or a licensed insurance agent accountant, and/or a licensed insurance agent regarding the actual circumstances of your regarding the actual circumstances of your business or personal affairs. This presentation business or personal affairs. This presentation is not tax advice and makes assumptions that is not tax advice and makes assumptions that may not reflect your tax circumstances.may not reflect your tax circumstances.

5

What You Will Take AwayWhat You Will Take Away

The Federal Government wants all The Federal Government wants all businesses to have a benefits plan.businesses to have a benefits plan.

They want all employees to have access to They want all employees to have access to the full range of benefits through their the full range of benefits through their company, even if company, even if the employee pays for the the employee pays for the benefitsbenefits..

There are financial incentives for both the There are financial incentives for both the employer and the employee to add benefits.employer and the employee to add benefits.

Firms should address the benefits issue now.Firms should address the benefits issue now.

6

Why the Federal Why the Federal Government is Making Government is Making

These Changes?These Changes? People who get into trouble either get People who get into trouble either get

services, make reduced payments for services, make reduced payments for services or forgo essential services.services or forgo essential services. Health Care – Uninsured people get health Health Care – Uninsured people get health

care and others pay for it.care and others pay for it. Worksite Benefits – People no longer have Worksite Benefits – People no longer have

a financial safety net and are easily thrown a financial safety net and are easily thrown into financial crisis, with costs to everyone.into financial crisis, with costs to everyone.

Retirement Savings – People do not save Retirement Savings – People do not save enough to retire. This imposes costs as enough to retire. This imposes costs as well.well.

7

What Is Total CoverageWhat Is Total Coverage

Major ProgramsMajor Programs Health InsuranceHealth Insurance Short Term Short Term

DisabilityDisability Income ProtectionIncome Protection Retirement SavingsRetirement Savings Long Term Long Term

DisabilityDisability Life InsuranceLife Insurance

Minor ProgramsMinor Programs Critical IllnessCritical Illness DentalDental VisionVision Education Education

SavingsSavings TransitTransit

8

Health InsuranceHealth Insurance

Why Small Businesses Needs Help to Why Small Businesses Needs Help to Offer InsuranceOffer Insurance

Fewer than half Insure Workers.Fewer than half Insure Workers. Costs continue to rise.Costs continue to rise. Small business employees pay more.Small business employees pay more. Higher administrative costs.Higher administrative costs.

9

What Reform Means For What Reform Means For Small BusinessesSmall Businesses

Ending discrimination by insurers.Ending discrimination by insurers. Making coverage more affordable.Making coverage more affordable. Providing better choices.Providing better choices.

10

Major Impact of ReformMajor Impact of Reform

20112011 Small Business Tax CreditsSmall Business Tax Credits

20142014 Ending Insurance DiscriminationEnding Insurance Discrimination Health Insurance ExchangesHealth Insurance Exchanges Benefits for Self-Employed Business Benefits for Self-Employed Business

OwnersOwners

11

2011 Small Business Tax 2011 Small Business Tax CreditsCredits

Tax credit of up to 35% of premiums a Tax credit of up to 35% of premiums a small business pays for its workers in small business pays for its workers in 2010-2013 and 50% starting in 2014.2010-2013 and 50% starting in 2014.

Small businesses eligible if:Small businesses eligible if: Have fewer than 25 full-time employees.Have fewer than 25 full-time employees. Average annual wages are less than Average annual wages are less than

$50,000.$50,000. Employer pays at least 50% of premium.Employer pays at least 50% of premium.

12

2011 Small Business Health 2011 Small Business Health Care Care

Tax Credit IllustrationTax Credit IllustrationBefore Tax

CreditAfter Tax

Credit

Gross Profit $ 500,000 $ 500,000

Health Care Expense $ (100,000) $ (65,000)

Other Business Expense $ (300,000) $ (300,000)

Pre-Tax Profit $ 100,000 $ 135,000

Tax (34%) $ (34,000) $ (45,900)

After Tax Profit $ 66,000 $ 89,100

Health Care Tax Credit none $ 35,000

Total Profit & Credit $ 66,000

$124,100

35% of Health Insurance Premiums

$23,100 net increase

in cash

13

2014 - Ending Insurance 2014 - Ending Insurance DiscriminationDiscrimination

Under Health Care ReformUnder Health Care Reform Prohibits insurers from denying coverage Prohibits insurers from denying coverage

for pre-existing conditions.for pre-existing conditions. Ends premium discrimination based on Ends premium discrimination based on

gender and health status.gender and health status. Eliminates lifetime and annual limits.Eliminates lifetime and annual limits. Strengthens oversight of insurer rate Strengthens oversight of insurer rate

increases.increases. Ends arbitrary and unreasonable Ends arbitrary and unreasonable

premium increases.premium increases.

14

2014 - Health Insurance 2014 - Health Insurance ExchangesExchanges

Lower rates that currently only large Lower rates that currently only large groups getgroups get

Stable pricing from year to yearStable pricing from year to year Increase pooling and administrative Increase pooling and administrative

efficienciesefficiencies Variety of plans with different benefit Variety of plans with different benefit

levelslevels Exchanges will allow small businesses Exchanges will allow small businesses

to negotiate better coverageto negotiate better coverage

15

2014 - Insurance 2014 - Insurance Exchange QualificationsExchange Qualifications

Small businesses with up to 100 Small businesses with up to 100 employees and self-employed people employees and self-employed people will qualify in 2014will qualify in 2014

States will have option to open their States will have option to open their exchanges to businesses with more exchanges to businesses with more than 100 employees, beginning in than 100 employees, beginning in 20172017

16

2014 - Self-Employed 2014 - Self-Employed Business OwnerBusiness Owner

An estimated 21 million Americans An estimated 21 million Americans are self-employedare self-employed

Self-employed face some of the worst Self-employed face some of the worst insurance abusesinsurance abuses

Coverage denials for pre-existing Coverage denials for pre-existing conditions, rescissions of coverage conditions, rescissions of coverage and huge rate increasesand huge rate increases

Discrimination in coverage and Discrimination in coverage and pricingpricing

17

2014 - Benefits to the Self-2014 - Benefits to the Self-EmployedEmployed

Ability to shop for health coverage in Ability to shop for health coverage in the insurance exchangesthe insurance exchanges

Benefit from Exchange risk poolingBenefit from Exchange risk pooling Increased bargaining powerIncreased bargaining power Increased transparency and benefit Increased transparency and benefit

standardsstandards Sliding scale premium affordability Sliding scale premium affordability

credits and caps on out-of-pocket credits and caps on out-of-pocket costscosts

18

Voluntary Worksite Voluntary Worksite BenefitsBenefits

Short TermDisabilityIncomeIndemnityCritical Illness

Dental & Vision

19

Why are Voluntary Benefits Why are Voluntary Benefits Suddenly Important?Suddenly Important?

Companies are trimming benefits.Companies are trimming benefits. Companies are dropping short term Companies are dropping short term

disability, dental and vision plans.disability, dental and vision plans. Health plans have higher deductibles.Health plans have higher deductibles. More health plans have co-insurance More health plans have co-insurance

provisions.provisions. Employees do not have a financial safety Employees do not have a financial safety

net.net. Personal wealth is lower than five years ago.Personal wealth is lower than five years ago. Savings and readily available cash are Savings and readily available cash are

historically low rates. historically low rates.

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How Voluntary Benefits How Voluntary Benefits Help Help

Your EmployeesYour Employees Without Cafeteria Without Cafeteria

PlanPlan Higher list prices.Higher list prices. Premiums are paid Premiums are paid

after tax.after tax.

With Cafeteria With Cafeteria PlanPlan Lower group Lower group

prices.prices. Premiums are paid Premiums are paid

pre-tax. (except pre-tax. (except STD)STD)

Employee Employee compensation compensation increases.increases.

21

How Voluntary Benefits How Voluntary Benefits Help Help

Your Business Your Business Without Cafeteria Without Cafeteria

PlanPlan Employer pays full Employer pays full

FICA.FICA.

With Cafeteria PlanWith Cafeteria Plan Employer does not Employer does not

pay FICA on pre-tax pay FICA on pre-tax premium payments.premium payments.

Employer may be Employer may be able to increase 35% able to increase 35% Health Care Tax Health Care Tax Credit.Credit.

Employees receive a Employees receive a benefit from their benefit from their employer.employer.

22

Tax Credit IllustrationTax Credit Illustration

An Example of How the Worksite An Example of How the Worksite Benefits can Increase the Health Benefits can Increase the Health Care Tax Credit:Care Tax Credit:

Your company employs 10 FTEs.Your company employs 10 FTEs. Your Average Annual Wage is Your Average Annual Wage is

$40,000.$40,000. Your health insurance premiums are Your health insurance premiums are

$100,000.$100,000.

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Tax Credit IllustrationTax Credit Illustration

Formula for calculating Tax CreditFormula for calculating Tax Credit (Ave. Annual Wage - $25,000) ÷ $25,000 = (Ave. Annual Wage - $25,000) ÷ $25,000 =

ModifierModifier (Health Care Premium– (Modifier × Health (Health Care Premium– (Modifier × Health

Care Premium)) × 35% = Care Premium)) × 35% = Tax CreditTax Credit

Pre-Aflac CreditPre-Aflac Credit ($40,000-$25,000) ÷ $25,000 = 60% ($40,000-$25,000) ÷ $25,000 = 60% ($100,000- (60% × $100,000)) × 35% =($100,000- (60% × $100,000)) × 35% =

$14,000$14,000

24

Tax Credit IllustrationTax Credit Illustration

Formula for calculating Tax CreditFormula for calculating Tax Credit (Ave. Annual Wage - $25,000) ÷ $25,000 = (Ave. Annual Wage - $25,000) ÷ $25,000 =

Modifier Modifier (Health Care Premium– (Modifier × Health (Health Care Premium– (Modifier × Health

Care Premium)) × 35% = Care Premium)) × 35% = Tax CreditTax Credit

Post-Aflac CreditPost-Aflac Credit (60% of employees sign up for Aflac policies, (60% of employees sign up for Aflac policies,

reducing Ave. Annual Wage by $750)reducing Ave. Annual Wage by $750) ($39,250-$25,000) ÷ $25,000 = 57% ($39,250-$25,000) ÷ $25,000 = 57% ($100,000 - (57% × $100,000)) × 35% = ($100,000 - (57% × $100,000)) × 35% =

$15,050 $15,050

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What Does the new benefits What Does the new benefits environment look like to the environment look like to the

employer?employer?No BenefitsNo Benefits Healthcare Healthcare

OnlyOnlyComplete Complete BenefitsBenefits

SalesSales $1,500,000$1,500,000 $1,500,000$1,500,000 $1,500,000$1,500,000

SalarySalary (500,000)(500,000) (500,000)(500,000) (471,500)(471,500)

Pre-Tax BenefitsPre-Tax Benefits 00 00 (28,500)(28,500)

FICA (7.65%)FICA (7.65%) (38,250)(38,250) (38,250)(38,250) (33,890)(33,890)

Other Variable Other Variable ExpenseExpense

(500,000)(500,000) (500,000)(500,000) (500,000)(500,000)

Gross ProfitGross Profit $461,750$461,750 $461,750$461,750 $466,110$466,110

Health Care Health Care ExpenseExpense

00 (100,000)(100,000) (65,000)(65,000)

Other Business Other Business ExpenseExpense

(300,000)(300,000) (300,000)(300,000) (300,200)(300,200)

Pre-Tax ProfitPre-Tax Profit $161,750$161,750 $61,750$61,750 $100,910$100,910

Tax (34%)Tax (34%) ($54,995)($54,995) ($20,995)($20,995) ($33,568)($33,568)

Health Care Tax Health Care Tax CreditCredit

00 00 35,00035,000

401(k) Tax Credit401(k) Tax Credit 00 00 500500

After Tax ProfitAfter Tax Profit $106,755$106,755 $40,755$40,755 $102,842$102,842

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What does the new benefits What does the new benefits environment look like to the environment look like to the

employee?employee?No BenefitsNo Benefits Healthcare OnlyHealthcare Only Complete BenefitsComplete Benefits

Gross PayGross Pay $50,000$50,000 $50,000$50,000 $50,000$50,000

Pre-Tax MedicalPre-Tax Medical 00 00 00

Pre-Tax 401(k)Pre-Tax 401(k) 00 00 (4,000)(4,000)

Pre-Tax VoluntaryPre-Tax Voluntary 00 00 (750)(750)

FICAFICA (3,825)(3,825) (3,825)(3,825) (3,462)(3,462)

Taxable IncomeTaxable Income $46,175$46,175 $46,175$46,175 $41,788$41,788

Income Tax (27%)Income Tax (27%) ($12,467)($12,467) ($12,467)($12,467) ($11,283)($11,283)

Take-Home PayTake-Home Pay $33,708$33,708 $33,708$33,708 $30,506$30,506

Medical InsuranceMedical Insurance ($12,000)($12,000)

Retirement SavingsRetirement Savings ($4,000)($4,000) ($4,000)($4,000) 00

Voluntary BenefitsVoluntary Benefits ($1,500)($1,500) (1,500)(1,500) 00

Benefit Neutral PayBenefit Neutral Pay $16,208$16,208 $28,208$28,208 $30,506$30,506

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Employer OptionsEmployer OptionsEmployer and Employee Pay 50%Employer and Employee Pay 50%

No BenefitsNo Benefits Healthcare Healthcare OnlyOnly

Complete Complete BenefitsBenefits

SalesSales $1,500,000$1,500,000 $1,500,000$1,500,000 $1,500,000$1,500,000

SalarySalary (500,000)(500,000) (500,000)(500,000) (471,500)(471,500)

Pre-Tax BenefitsPre-Tax Benefits 00 00 (28,500)(28,500)

FICA (7.65%)FICA (7.65%) (38,250)(38,250) (38,250)(38,250) (33,890)(33,890)

Other Variable Other Variable ExpenseExpense

(500,000)(500,000) (500,000)(500,000) (500,000)(500,000)

Gross ProfitGross Profit $461,750$461,750 $461,750$461,750 $466,110$466,110

Health Care Health Care ExpenseExpense

00 (50,000)(50,000) (32,500)(32,500)

Other Business Other Business ExpenseExpense

(300,000)(300,000) (300,000)(300,000) (300,200)(300,200)

Pre-Tax ProfitPre-Tax Profit $161,750$161,750 $111,750$111,750 $133,410$133,410

Tax (34%)Tax (34%) ($54,995)($54,995) ($37,995)($37,995) ($44,618)($44,618)

Health Care Tax Health Care Tax CreditCredit

00 00 17,50017,500

401(k) Tax Credit401(k) Tax Credit 00 00 500500

After Tax ProfitAfter Tax Profit $106,755$106,755 $73,755$73,755 $106,792$106,792

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Employee OptionsEmployee OptionsEmployer and Employee Pay 50%Employer and Employee Pay 50%

No BenefitsNo Benefits Healthcare OnlyHealthcare Only Complete BenefitsComplete Benefits

Gross PayGross Pay $50,000$50,000 $50,000$50,000 $50,000$50,000

Pre-Tax MedicalPre-Tax Medical 00 00 (5,000)(5,000)

Pre-Tax 401(k)Pre-Tax 401(k) 00 00 (4,000)(4,000)

Pre-Tax VoluntaryPre-Tax Voluntary 00 00 (750)(750)

FICAFICA (3,825)(3,825) (3,825)(3,825) (3,079)(3,079)

Taxable IncomeTaxable Income $46,175$46,175 $46,175$46,175 $37,171$37,171

Income Tax (27%)Income Tax (27%) ($12,467)($12,467) ($12,467)($12,467) ($10,036)($10,036)

Take-Home PayTake-Home Pay $33,708$33,708 $33,708$33,708 $27,135$27,135

Medical InsuranceMedical Insurance ($12,000)($12,000)

Retirement SavingsRetirement Savings ($4,000)($4,000) ($4,000)($4,000) 00

Voluntary BenefitsVoluntary Benefits ($1,500)($1,500) (1,500)(1,500) 00

Benefit Neutral PayBenefit Neutral Pay $16,208$16,208 $28,208$28,208 $27,135$27,135