DISABILITY INSURANCE Salary Continuation Program

Transcription

1 DISABILITY INSURANCE Salary Continuation Program protect the people who make your business a success

2 Help your employees when they need youthe most. As a business owner, you probably feel you have certain responsibilities to your employees and their families. If one of your employees became disabled, could you help them and their family through such a difficult time? One way might be to continue paying a disabled employee until he or she is on the road to recovery. Your goodwill would be a big help to the family, yet paying employees who are not actively working might create some problems for your business. For example: The IRS could view the arrangement as a settlement and not as salary, so you may not be able to claim the payment as a tax-deductible business expense. If you don t show the same generosity toward everyone, your company could be subject to discrimination claims. Or if your company s payment practices are contested for other reasons, litigation could be costly. Your company could be required to pay back taxes, penalties or interest. Employee morale may suffer if employees aren t clear when or if they will get sick pay. Neither MetLife nor its representatives or agents are permitted to give accounting, ERISA, legal or tax advice. Any discussion of taxes and/or ERISA included in or related to this brochure is for general informational purposes only and does not constitute legal or tax advice. Such discussion does not purport to be complete or to cover every situation. You must consult with your own legal or tax advisor to determine how these rules affect you. Current tax and ERISA law is subject to interpretation and legislative change. Tax results and the appropriateness of any product for any specific taxpayer may vary depending on the particular set of facts and circumstances. You should consult with and rely on your own legal, tax and/or ERISA advisors.

3 The right thing for Your Employees and Your Business It is possible to help employees at this difficult time in their lives without putting the entire financial burden on your business. A Salary Continuation Program, also known as wage continuation or a sick-pay plan, helps protect employees and their families if they become sick or hurt and unable to work. Step 1. Establish a Salary Continuation Program for your company and see instant benefits. * To You and Your Business: Confidence: less uncertainty about how to handle an employee s disability or how to maintain your own lifestyle if you suffer a disability. Step 2: Fund the plan. Comfort: feel good that you are providing for your employees, especially family members or other loved ones. Support: your business won t bear the full burden of providing for disabled employees. Choice: select which employees you want to help and how much you want to support them. Success: as a valuable benefit, it may help recruit, motivate and retain key employees. See the difference a plan can make Without a Plan To Employees: Protection: a portion of their income will continue to be provided to them if they are disabled. Morale: knowing they have an employer who will provide for them can improve their workplace experience. You can further protect your business and help your employees by funding your company s Salary Continuation Program with disability income insurance. This proves to be a cost-effective way to ensure the necessary funds are available when an employee suffers a disability With a Plan Self-funded Insured Evidence of a plan for tax and legal purposes None. Possibly no presumption that your plan exists. Written with pre-established payment amounts and durations. Written with pre-established payment amounts and durations. Plus, insured funding can help strengthen the presumption of your plan s existence. Tax-deductible Premiums No Yes Yes Payment Amount and Duration Unknown Fixed Fixed Who determines when a disability You You Insurer has occurred and pays claims Employees assured of receiving income No Yes Yes * The program must comply with applicable provisions of the Internal Revenue Code and case law in this area and be established in advance of a disability. Neither MetLife nor its representatives or agents are permitted to give accounting, ERISA, legal or tax advice. Any discussion of taxes and/or ERISA included in or related to this brochure is for general informational purposes only and does not constitute legal or tax advice. Such discussion does not purport to be complete or to cover every situation. You must consult with your own legal or tax advisor to determine how these rules affect you. Current tax and ERISA law is subject to interpretation and legislative change. Tax results and the appropriateness of any product for any specific taxpayer may vary depending on the particular set of facts and circumstances. You should consult with and rely on your own legal, tax and/or ERISA advisors.

4 MetLife makes it easy for your business With over 140 years of helping people protect those who depend on them, MetLife has the experience and expertise to help you meet your responsibilities to your employees. Your team of financial, legal and tax professionals can walk you through the process of establishing a Salary Continuation Program for your business, while funding it appropriately with disability income insurance. I want to implement a Salary Continuation Plan and fund it with individual disability income insurance.. How do I get started? Consult with your legal or tax advisor. There can be little or no cost to your company. The plan can be voluntary, where the entire premium is paid by the employee and benefits to the employee from the policy are received tax-free. Or, you can pay the premiums as an added benefit for certain classes of employees. It s up to you. The enrollment and administration process is simple. The initial enrollment and ongoing program are completely administered by MetLife. All you have to do is enroll employees. MetLife even provides all the employee communications, proposals and benefit review kits. MetLife Individual Disability Income Insurance can supplement current or new disability plans. MetLife s program can supplement an existing LTD plan even if it isn t a MetLife plan or can be implemented in conjunction with a new LTD plan. You can rely on MetLife MetLife provides financial security for millions of people worldwide and has over 140 years of insurance industry experience. MetLife has been providing disability income insurance for more than 90 years. Contact your financial professional today. We re more than happy to answer any questions you may have, provide sample rates and benefits and help you implement the best program for you and your employees. Neither MetLife nor its representatives or agents are permitted to give accounting, ERISA, legal or tax advice. Any discussion of taxes and/or ERISA included in or related to this brochure is for general informational purposes only and does not constitute legal or tax advice. Such discussion does not purport to be complete or to cover every situation. You must consult with your own legal or tax advisor to determine how these rules affect you. Current tax and ERISA law is subject to interpretation and legislative change. Tax results and the appropriateness of any product for any specific taxpayer may vary depending on the particular set of facts and circumstances. You should consult with and rely on your own legal, tax and/or ERISA advisors.

5 tax guidelines To be sure your plan qualifies for tax advantages, and to avoid the potential of Tax Court, first see if your program meets the following requirements and consult with your own legal or tax advisor. A Salary Continuation Program must be: In effect prior to the onset of disability. Detailed and known to the employees. Established for employees. Various programs can be set up for different levels of employees. What are the differences in taxation between employer-paid and employee-paid premiums? Employer-Paid Premiums are generally tax-deductible to the employer as a business expense. Benefits are generally taxable to the employee. Employee-Paid If premiums are paid with after-tax dollars, benefits are generally not taxable to the employee. If premiums are paid with pre-tax dollars, benefits are generally taxable to the employee. Neither MetLife nor its representatives or agents are permitted to give accounting, ERISA, legal or tax advice. Any discussion of taxes and/or ERISA included in or related to this brochure is for general informational purposes only and does not constitute legal or tax advice. Such discussion does not purport to be complete or to cover every situation. You must consult with your own legal or tax advisor to determine how these rules affect you. Current tax and ERISA law is subject to interpretation and legislative change. Tax results and the appropriateness of any product for any specific taxpayer may vary depending on the particular set of facts and circumstances. You should consult with and rely on your own legal, tax and/or ERISA advisors.

6 The Internal Revenue Code (IRC) sections and laws are confusing. Can you clarify some of them? Sure. Here s a general summary of some of the IRC sections and laws that affect Salary Continuation Programs: Section 104 Under this IRC section, generally, amounts received under an arrangement that has the effect of accident or health insurance for personal injuries or sickness (such as a salary continuation plan) that are attributable to premiums paid by the employee on an after-tax basis and which are not deductible under IRC section 213 are not includible in the employee s gross income. Section 105 This IRC section generally describes an accident or sickness plan as a program for paying employees who get sick or injured. Because they continue the salaries of employees who are unable to work due to accident or illness, salary continuation programs are included in this definition. Accordingly, benefits received under an employer-provided salary continuation program are generally taxable. If employees pay part of the premium for an individual disability policy on an after-tax basis, generally only the portion of the benefits attributable to the employer paid premiums are subject to federal income tax. Finally, programs must be established for a firm s employees ; therefore, stockholder employees may be disallowed by the IRS. The exception is when those stockholder employees can be set apart as an employee class based on such conditions of employment as duties, job level or length of service. Section 106 When a salary continuation program is funded by individual disability income insurance, premium payments made by the employer are generally considered contributions to an accident or health plan. So those payments aren t included in an insured employee s gross income. Section 162 An employer can generally deduct disability income insurance premiums paid to support a salary continuation program as an ordinary and necessary business expense. For deductibility of premiums paid for, and the tax treatment of proceeds received under, an insurance policy for business overhead expenses for periods of disability due to injury or sickness, see also sections 213 and 265, and Revenue Ruling , C.B. 11. Employee Retirement Income Security Act of 1974 (ERISA) Certain employee welfare plans, including many salary continuation programs, are subject to ERISA s plan document requirements, reporting and disclosure rules, and fiduciary standards. An ERISA regulated plan must be established and maintained according to a written instrument or program document. ERISA plans with fewer than 100 participants and that don t require employee contributions are exempt from ERISA s annual reporting requirements (IRS form 5500). But, the program document requirements, fiduciary standards and disclosure rules still apply. You should consult with your own advisors to determine whether your arrangement is an ERISA plan. Neither MetLife nor its representatives or agents are permitted to give accounting, ERISA, legal or tax advice. Any discussion of taxes and/or ERISA included in or related to this brochure is for general informational purposes only and does not constitute legal or tax advice. Such discussion does not purport to be complete or to cover every situation. You must consult with your own legal or tax advisor to determine how these rules affect you. Current tax and ERISA law is subject to interpretation and legislative change. Tax results and the appropriateness of any product for any specific taxpayer may vary depending on the particular set of facts and circumstances. You should consult with and rely on your own legal, tax and/or ERISA advisors.

7 What requirements must be met and what documents will I need? The type of documentation needed is based on how your company is organized. Your legal advisor can help you draw up the necessary documents. Some common examples are listed below. Type of Business Corporation Partnership Sole Proprietorship Document Resolution of the Board of Directors Partners Agreement Statement of Benefits Keep in mind that under a Salary Continuation Program funded by individual disability income insurance, the participation of some or all prospective participants may depend on the underwriting process. So your program documents should not be finalized until the appropriate individual underwriting decisions have been made. Sample Salary Continuation Program Documents The following sample documents are provided only to help your legal counsel draft the actual program documents. They may not apply to your particular circumstances. Neither MetLife nor its representatives or agents are permitted to give accounting, ERISA, legal or tax advice. Any discussion of taxes and/or ERISA included in or related to this brochure is for general informational purposes only and does not constitute legal or tax advice. Such discussion does not purport to be complete or to cover every situation. You must consult with your own legal or tax advisor to determine how these rules affect you. Current tax and ERISA law is subject to interpretation and legislative change. Tax results and the appropriateness of any product for any specific taxpayer may vary depending on the particular set of facts and circumstances. You should consult with and rely on your own legal, tax and/or ERISA advisors.

8 Sample Corporate Resolution

9 Sample Program Document

10 Sample Agreement of Partners

11 Sample Resolution of Sole Proprietor or Sub-S (Single Owner)

12 Protect your business, employees and yourself All businesses are different, so this strategy might not fit your business needs. Many other strategies are available, and your financial professional can help you build a disability plan that s cost-effective and right for your situation. working for you. For years MetLife has been committed to helping business owners plan for the unexpected. MetLife has the experience, resources and commitment to help you safeguard the things that matter most to you. Like most disability income insurance policies, MetLife s policies contain certain exclusions, waiting periods, reductions, limitations and terms for keeping them in force. Ask your representative about costs and complete details. All policies and riders may not be available in all states, at all issue ages and to all occupational classes. Ask your representative for complete details. Eligibility is subject to underwriting approval. For policies issued in New York: These policies provide disability income insurance only. They do NOT provide basic hospital, basic medical or major medical insurance as defined by the New York State Insurance Department. The expected benefit ratio for these policies is at least 50%. This ratio is the portion of future premiums that MetLife expects to return as benefits when averaged over all people with the applicable policy. Pursuant to IRS Circular 230, MetLife is providing you with the following notification: The information contained in this document is not intended to (and cannot) be used by anyone to avoid IRS penalties. This document supports the promotion and marketing of insurance products. You should seek advice based on your particular circumstances from an independent tax advisor. MetLife, its agents, and representatives may not give legal or tax advice. Any discussion of taxes herein or related to this document is for general information purposes only and does not purport to be complete or cover every situation. Tax law is subject to interpretation and legislative change. Tax results and the appropriateness of any product for any specific taxpayer may vary depending on the facts and circumstances. You should consult with and rely on your own independent legal and tax advisers regarding your particular set of facts and circumstances. Disability income insurance is issued by Metropolitan Life Insurance Company on IDI2000-P/NC, IDI2000-P/NC-ML, IDI2000-P/GR, AH 5-88, AH 6-90, AH 7-96-CA and AH 8-96-CA. July 2012 Not FDIC-Insured Not Insured By Any Federal Government Agency Not Guaranteed by Any Bank or Credit Union Metropolitan Life Insurance Company 200 Park Avenue New York, NY metlife.com CLDI22711 L [0813][All States][DC] 2012 METLIFE, INC. PEANUTS 2012 Peanuts Worldwide