Qualified SickPay Plans (QSPP)     advice4retirement.com     Member of FINRA, SIPC
What is a QSPP?A legal, formal sick pay planIt is not insurance.              advice4retirement.com              Member of...
What is a QSPP?A QSPP defines: – Who – How much and – Under what conditionsa person will receive money during a period ofd...
Why Establish  a QSPP?   advice4retirement.com   Member of FINRA, SIPC
Why establish a QSPP?Chism vs. Commissioner 1963 When an employee is disabled he/she no longer is an employee. Wages can o...
Why establish a QSPP?1. Under a QSPP, payments made to an   employee who is hurt or sick are tax   deductible.     - Ad ho...
Why establish a QSPP?You need a plan document. Withoutone, payments are ad hoc.             advice4retirement.com         ...
Why establish a QSPP?    Ad Hoc vs. Plan PaymentAd Hoc Payment                   Plan Payment > $25 gift                  ...
Why establish a QSPP?1. Under a QSPP, payments made to an   employee who is hurt or sick are tax   deductible.     - Ad ho...
Why establish a QSPP?The plan can be set up for a particularclass of employees, allowing theemployer flexibility in coveri...
What are the advantages         of a QSPP?1. Allows tax-deductible payments to the  disabled employee, which is good for t...
Funding the Plan    advice4retirement.com    Member of FINRA, SIPC
Funding the Plan  – A company can choose to:    1. Establish cash reserves    2. Use current cash flow    3. Buy insurance...
Funding the PlanFinancial Issues of Self-funding a QSPP  A company may not have the cash  immediately  Current cash flow g...
Funding the Plan Annual Employer Cost For One Disabled Employee**      No Plan                         Self-Funded QSPP   ...
Best Solution is to Buy      Insurance       advice4retirement.com       Member of FINRA, SIPC
Buy Insurance    A company can either: Self-fund the QSPP Fund the QSPP through an insurance policy                advice4...
Buy Insurance  Financial Accounting Standard 112 With a self-funded plan:  – Payments for employee sick pay must come from...
Buy InsuranceWhich would an employer rather do?Take on the responsibility him/herself               - OR -Shift the burden...
Buy Insurance Decision is made to buy insurance.  – What is next?                advice4retirement.com                Memb...
Government Requirements for QSPP (IRS Code 105)The plan should be in writing, although a boardresolution may suffice.The p...
ERISA IssuesConcerns regarding employee benefit rightsLimitation to amount for which employee cansue               advice4...
Buy Insurance       What kind to buy? Group LTD Individual DI Combination – Group LTD and IDI                 advice4retir...
Buy Insurance           Group LTD Many companies already have LTD Limitations to LTD                advice4retirement.com ...
Group LTD (continued)         Limitations to LTD Typically protects only 60 percent of income Are often employer paid, res...
Buy InsuranceSupplement with Individual DI Key advantages:  – Excellent contract provisions  – Non-can contracts  – Insure...
A. Van Richardsvan@advice4retirement.comwww.advice4retirement.com      advice4retirement.com      Member of FINRA, SIPC
Upcoming SlideShare
Loading in …5
×

Qualified sick pay plan presentation

951 views

Published on

Qualfied Sick Pay Presentation

Published in: Economy & Finance
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
951
On SlideShare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
10
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Qualified sick pay plan presentation

  1. 1. Qualified SickPay Plans (QSPP) advice4retirement.com Member of FINRA, SIPC
  2. 2. What is a QSPP?A legal, formal sick pay planIt is not insurance. advice4retirement.com Member of FINRA, SIPC
  3. 3. What is a QSPP?A QSPP defines: – Who – How much and – Under what conditionsa person will receive money during a period ofdisability. advice4retirement.com Member of FINRA, SIPC
  4. 4. Why Establish a QSPP? advice4retirement.com Member of FINRA, SIPC
  5. 5. Why establish a QSPP?Chism vs. Commissioner 1963 When an employee is disabled he/she no longer is an employee. Wages can only be paid to employees. Any money paid that is greater than $25 is a gift. A QSPP must be in place before an employee is disabled. If there isn’t a QSPP in place, it is considered ad hoc and as a result is not tax deductible. advice4retirement.com Member of FINRA, SIPC
  6. 6. Why establish a QSPP?1. Under a QSPP, payments made to an employee who is hurt or sick are tax deductible. - Ad hoc payments are not tax deductible.2. Under a QSPP, employers can be selective as to who can and can’t be covered. advice4retirement.com Member of FINRA, SIPC
  7. 7. Why establish a QSPP?You need a plan document. Withoutone, payments are ad hoc. advice4retirement.com Member of FINRA, SIPC
  8. 8. Why establish a QSPP? Ad Hoc vs. Plan PaymentAd Hoc Payment Plan Payment > $25 gift Legal Obligation Not a business Business Expenses expense Taxable to Taxable to Executive Executive advice4retirement.com Member of FINRA, SIPC
  9. 9. Why establish a QSPP?1. Under a QSPP, payments made to an employee who is hurt or sick are tax deductible. - Ad hoc payments are not tax deductible.2. Under a QSPP, employers can be selective as to who can and can’t be covered. advice4retirement.com Member of FINRA, SIPC
  10. 10. Why establish a QSPP?The plan can be set up for a particularclass of employees, allowing theemployer flexibility in covering thoseemployees he/she wants.Benefits can vary by class, allowing theemployer flexibility in the amount ofbenefit to be provided to each class. advice4retirement.com Member of FINRA, SIPC
  11. 11. What are the advantages of a QSPP?1. Allows tax-deductible payments to the disabled employee, which is good for the employer2. Requires payments to the disabled employee, which is good for the employee advice4retirement.com Member of FINRA, SIPC
  12. 12. Funding the Plan advice4retirement.com Member of FINRA, SIPC
  13. 13. Funding the Plan – A company can choose to: 1. Establish cash reserves 2. Use current cash flow 3. Buy insurance advice4retirement.com Member of FINRA, SIPC
  14. 14. Funding the PlanFinancial Issues of Self-funding a QSPP A company may not have the cash immediately Current cash flow goes toward paying employees plus replacement for the disabled employee. – What happens when revenue is down? advice4retirement.com Member of FINRA, SIPC
  15. 15. Funding the Plan Annual Employer Cost For One Disabled Employee** No Plan Self-Funded QSPP Insured QSPPRevenue $100,000 Revenue $100,000 Revenue $100,000Income Tax * - 32,000 Sick Pay - 30,000 Premium - 1,000Net Profit 68,000 Pre-Tax 70,000 Pre-Tax 99,000Sick Pay - 30,000 Income Tax* - 22,400 Income Tax* - 31,680Retained Earnings Retained Earnings Retained Earnings $38,000 $47,600 $67,320 plus DI Benefits•Assumes a 32% Corporate tax rate. $30,000** Approximate annual cost of insuring on a 35-year old employee with $30,000 annual benefit to age 65. advice4retirement.com Member of FINRA, SIPC
  16. 16. Best Solution is to Buy Insurance advice4retirement.com Member of FINRA, SIPC
  17. 17. Buy Insurance A company can either: Self-fund the QSPP Fund the QSPP through an insurance policy advice4retirement.com Member of FINRA, SIPC
  18. 18. Buy Insurance Financial Accounting Standard 112 With a self-funded plan: – Payments for employee sick pay must come from company cash funds. – In addition, the company must estimate the future cost of sick pay payments and record these as a business liability in the year the disabling accident or sickness occurs. – The employer must make the claims decisions. advice4retirement.com Member of FINRA, SIPC
  19. 19. Buy InsuranceWhich would an employer rather do?Take on the responsibility him/herself - OR -Shift the burden to an insurance company advice4retirement.com Member of FINRA, SIPC
  20. 20. Buy Insurance Decision is made to buy insurance. – What is next? advice4retirement.com Member of FINRA, SIPC
  21. 21. Government Requirements for QSPP (IRS Code 105)The plan should be in writing, although a boardresolution may suffice.The plan must be in effect before a disabilityoccurs.The plan must be communicated toparticipating employees.The plan must be set up solely for employees.The benefits cannot be excessive. advice4retirement.com Member of FINRA, SIPC
  22. 22. ERISA IssuesConcerns regarding employee benefit rightsLimitation to amount for which employee cansue advice4retirement.com Member of FINRA, SIPC
  23. 23. Buy Insurance What kind to buy? Group LTD Individual DI Combination – Group LTD and IDI advice4retirement.com Member of FINRA, SIPC
  24. 24. Buy Insurance Group LTD Many companies already have LTD Limitations to LTD advice4retirement.com Member of FINRA, SIPC
  25. 25. Group LTD (continued) Limitations to LTD Typically protects only 60 percent of income Are often employer paid, resulting in taxable benefits Often have a cap on benefits, such as $5,000/month Typically cancelable by the insurance company or by the employer May have contractual limitations Designed for a group of individuals and does not allow each individual to tailor his/her coverage Often does not cover certain types of income (i.e., bonuses) advice4retirement.com Member of FINRA, SIPC
  26. 26. Buy InsuranceSupplement with Individual DI Key advantages: – Excellent contract provisions – Non-can contracts – Insured owns the policy – Customer design, extremely flexibility – Portable – Best of both worlds advice4retirement.com Member of FINRA, SIPC
  27. 27. A. Van Richardsvan@advice4retirement.comwww.advice4retirement.com advice4retirement.com Member of FINRA, SIPC

×