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Follow on Google News | Defined Contribution- Simplifying The Employers RoleGrowing in popularity alongside insurance exchanges, defined contribution plans allow employers to establish their own budget and assist employees with health care expenses through tax-free contributions. The defined contribution model allows employe
Part 2 of 4 Growing in popularity alongside insurance exchanges, defined contribution plans allow employers to establish their own budget and assist employees with health care expenses through tax-free contributions. The defined contribution model allows employers to set their annual benefits budget, helping them to reduce or stabilize the ever-increasing health care costs. At the same time, it gives employees more choices than ever before and the opportunity to shop for the coverage they need. They also can contribute their own payroll dollars in a tax-advantaged way to cover any qualified benefit premium amounts as well as other eligible out-of-pocket expenses. The best way to facilitate this would be though a Flexible Spending Account (FSA) A Flexible Spending Account (FSA) is one of a number of tax-advantaged financial accounts that can be set up through a cafeteria plan of an employer in the United States. An FSA allows an employee to set aside a portion of earnings (currently capped at $2500) to pay for qualified expenses as established in the cafeteria plan, most commonly for medical expenses but often for dependent care or other expenses. Money deducted from an employee's pay into an FSA is not subject to payroll taxes, resulting in substantial payroll tax savings. Employers contributions do not count toward the $2500 IRS imposed limit. One slight disadvantage to using an FSA is that funds not used by the end of the plan year are lost to the employer, known as the "use it or lose it" rule. This can easily be managed by using a FSA worksheet and also there is current discussion to have this rule repealed. A Defined Contribution, funded inside an FSA, is financed with employer’ As you can begin to see the Affordable Care Act (ACA) has provided the employer with two options. One of those options is to slightly back away from providing medical plans and benefits too being able to fully walk away while providing a Defined Contribution to the employees to purchase coverage that fits their family’ Next week’s article will discuss how to enable the tax free distribution of the employer’ Al Scepkowski is a Chartered Benefits Consultant (CBC) with First National Administrators in Parsippany, New Jersey. His email is ascepkowski@ End
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