Florida Law
Florida Employee Benefits Law
Employee Benefits Law
In addition to wages, many employers choose to provide a variety of employee benefits to their workers. Although employers are not required to provide most employee benefits, once an employer decides to do so, he or she must comply with numerous state and federal laws regulating employee benefits programs. This chapter will consider some of the most basic areas of state and federal laws regulating voluntary employee benefits plans.Topics such as wages, discrimination, and hiring and termination responsibilities are discussed in the Employment Law: Management Chapter. Unemployment compensation taxes are discussed in the Corporate Tax Law Chapter. Issues of concern to employers of labor union members are discussed in the Labor Law Chapter.
Employee Benefits Packages
Employee benefits packages vary according to the size and nature
of the business. Some benefits packages are more attractive for
small businesses than large corporations. A business with mostly
younger employees might offer a benefits package attractive to
families with young children, whereas a business with mostly older
employees will emphasize retirement benefits. An employer concerned
with high employee turnover may structure a benefits package one
way to minimize his or her contributions, or another way to encourage
employees to stay longer. Fortunately, employee benefits is an
area of law in which business owners enjoy a great deal of flexibility
to structure packages that meet the needs of employers and employees
and comply with the law.
The growth in popularity of employee benefits packages has led
to a concomitant growth in legislation regulating them. Familiarity
with these regulations is an important business tool. Employee
benefits laws influence how businesses are run, and intelligently
crafted benefits packages often give a business a competitive
edge in attracting good workers.
ERISA
The Employee Retirement Income Security Act (ERISA) is a federal
law that seeks to standardize pension plans as well as medical,
surgical, sickness, disability and death benefits plans. Its provisions
attempt to ensure that such plans are financially sound and equitable.
To comply with ERISA, plans must provide for broad employee participation.
ERISA requires that businesses provide employees with detailed
information regarding benefits plans. It sets minimum standards
governing eligibility for participation, benefits rights and accrual,
vesting, employer and employee contributions, payment of benefits,
plan termination, mergers and survivors’ benefits.
A number of benefits plans are exempt from ERISA requirements,
including:
•Government plans
•Plans administered by religious employers
•Plans administered outside the United States for non-resident
aliens
•Many severance pay plans
Several federal agencies play a role in enforcing ERISA’s provisions.
Regulations are expansive and complex. For instance, ERISA imposes
strict fiduciary duties upon employers to oversee their plans.
Failure to follow regulations can expose an employer to civil
liability. Additionally, compliance with ERISA usually is a prerequisite
to an employer’s claiming a tax deduction for amounts contributed
to a benefits plan. Therefore, employers who wish to establish
benefits plans should consult an attorney who is experienced in
ERISA compliance issues.
COBRA
Under the Consolidated Omnibus Budget Reconciliation Act of 1985
(COBRA), employers who sponsor group health plans must give covered
employees the option to continue group coverage after they leave
employment under certain circumstances. Under COBRA, these employers
must provide an employee and the employee’s spouse or dependents
(if covered) with notice of the right to continue coverage if
the employee’s job is terminated, the marriage is terminated or
a dependent child ceases to be a dependent under the terms of
the plan. The covered individual can elect to continue, for a
limited period, the coverage that he or she had before the termination.
The employer can require that the covered individual pay up to
102 percent of the cost of coverage.
Generally, an employer with 20 or more employees on a typical
business day during the preceding calendar year must comply with
COBRA’s requirements. All employees of employers under common
control (such as subsidiaries of a common parent) are added together
to reach this number. All employees who are eligible for the group
health plan are counted, including full-time employees, part-time
employees, and independent contractors. Churches and government
agencies are exempt from COBRA, although government agencies must
comply with similar rules under the Public Health Services Act.
As with other employee benefits discussed in this chapter, COBRA
requirements are quite technical. For example, a covered employee
terminated for gross misconduct cannot elect COBRA continuation
coverage (although the terminated employee’s spouse and dependents
may elect to continue coverage). But the definition of what constitutes
gross misconduct in this context is murky. A former employee improperly
denied COBRA rights may be entitled to substantial penalties from
the employer. An attorney experienced in this area can advise
an employer on how to comply with COBRA’s notice requirements.
401(k) Plan
A 401(k) plan is a salary-reduction plan that is used alone or
to complement other profit-sharing or stock bonus plans. This
type of plan takes its name from a section of the Internal Revenue
Code and sometimes is referred to as a CODA, which stands for
“cash or deferred arrangement.” Workers of employers who offer
such plans choose whether to receive their entire pay in cash
or to have a portion set aside for retirement and taxed only when
they retire or withdraw the money. Employers may, but are not
required to, match a percentage of the employee contribution.
Deferred amounts are invested in a plan and can grow tax free
until distribution. A worker can access the funds in a 401(k)
account before retiring but must pay taxes upon distribution at
his or her current tax rate.
In order to take advantage of Section 401(k) treatment, a plan
must meet specific nondiscrimination tests that compare the treatment
of “highly compensated employees” and “non-highly compensated
employees.” Employers may not discriminate in favor of highly
compensated employees.
Employee Stock Ownership Plan
An employee stock ownership plan (ESOP) is a stock-bonus plan
designed to provide employees with investment in the stock of
the employer. There are advantages to the employer, such as the
ability to conserve cash for other uses, and for the employee,
who can take advantage of tax breaks. ESOPs allow employees to
share in the ownership and growth of the companies they work for,
while giving the company tax deductions for the value of the stock
it contributes.
An important advantage to an ESOP is that the shares are voted
by the ESOP’s trustee. Because the company picks the trustee,
management retains control, with two exceptions. Corporate decisions
requiring a super-majority vote must be voted on directly by the
participants in the ESOP, and participants who choose to take
shares at distribution (rather than money) vote their own shares.
ESOPs are not available to subchapter S corporations.
Individual Retirement Account
An individual retirement account (IRA) is a retirement plan that permits employees to pay a specified amount of their compensation into an account that is not taxed until the individual withdraws the money. Generally, if the funds are withdrawn from the account before the individual reaches age 60, there is a penalty of 10 percent of the account in addition to the tax. Many employees elect to contribute to an IRA instead of or in addition to a pension plan or other retirement benefits plan provided through their employers.
Keogh Plan
A Keogh plan is a retirement plan established for the use of unincorporated
small business owners or self-employed persons such as writers,
lawyers or doctors. A Keogh offers a tax shelter, up to a ceiling,
for amounts contributed toward retirement. An employee covered
by another retirement plan at work can set up a Keogh if he or
she earns income from a sideline business.
If retirement plans are set up correctly by an employer, they
may allow the employer to use the money as a tax deduction. Qualified
pension plans allow the employer to pay a set amount or percentage
into a trust fund each pay period.
Qualified versus Non-Qualified Plans
There are two categories of employee benefits plans that permit
employees to defer taxation of income until retirement or termination
of employment. These two categories are referred to as “qualified
plans” and “non-qualified plans.” A qualified plan is one that
meets several requirements in the Internal Revenue Code and ERISA,
described above. A non-qualified plan is one that does not meet
these requirements and usually refers to a deferred compensation
plan for key executives.
Qualified plans enjoy several advantages. Subject to limited exceptions,
employers contributing to qualified plans are entitled to a tax
deduction when the contribution is made. In contrast, employer
contributions to non-qualified plans are non-deductible until
the employer is taxed on the benefit. Contributions made to qualified
plans accumulate earnings on a tax-deferred basis, while amounts
contributed to a nonqualified plan are taxed along with the employer’s
other income for the year. A qualified plan protects assets from
creditors. Finally, employees who participate in a qualified plan
are not taxed on their employer’s contribution until they actually
receive their benefits from the plan. Participants in a nonqualified
plan generally pay tax on employer contributions unless the employee
can show that the non-qualified plan includes a substantial risk
of forfeiture.
The primary advantage of nonqualified plans is that they need
not comply with many of the government regulations governing qualified
plans. Anti-discrimination rules that require qualified plans
to provide benefits to all employees on a generally equivalent
basis do not apply to non-qualified plans. A small business owner
can concentrate benefits on himself or herself or on key employees.
When to See an Employee Benefits Attorney
Lawyers who practice employee benefits law usually operate in a proactive mode, helping businesses avoid problems rather than reacting after they arise. Experienced employee benefits attorneys can provide a business with an employee benefits review that can help spot problems before they become significant workplace and financial strains. Such a review will help ensure that a business maintains up-to-date required files, complies with new IRS rules, communicates effectively with employees about their benefits, and does not illegally discriminate in any of its plans or practices.
Resources
Employee Benefits Law, Steven J. Sacher et al., eds. Supp. 1994, American Bar Association,
Section of Labor and Employment Law, Employee Benefits Committee.
Association of Private Pension and Welfare Plans, 1212 New York
Avenue NW, Suite 1250, Washington, D.C. 20005, (202) 289-6700.
Employee Stock Ownership Association, 1726 N Street NW, Suite
501, Washington, D.C. 20036, (202) 293-2971.
Employers Council on Flexible Compensation, 927 15th Street NW,
Suite 1000, Washington, D.C. 20005, (202) 659-4300.
ERISA Industry Committee, 1400 L Street NW, Suite 350, Washington,
D.C. 20005, (202) 789-1400.
Florida Revenue Department, 5050 Tennessee Street West, Suite
104, Tallahassee, FL 32399-0100, (904) 922-4746.
Internal Revenue Service, Employee Plans Technical and Actuarial
Division, 1111 Constitution Avenue NW, Washington, D.C. 20224.
Call (202) 622-6074 or 1-800-829-3676 for information or the following
free publications: Individual Retirement Arrangements (pub. no.
590); Retirement Plans for Self-Employed Persons (pub. no. 560).
National Center for Employee Stock Ownership, 2201 Broadway, Suite
807, Oakland, CA 94612. Call (510) 272-9461 for information about
ESOPs.
Guide to Employee Handbooks: A Model for Management–With Commentary,
Robert J. Nobile, Warren, Gorham & Lamont, Boston, MA, 1996.
Pension Rights Center, 918 16th Street NW, Suite 704, Washington,
D.C. 20006-2902. Call (202) 296-3776 for the booklet: Where to
Look for Help with a Pension Problem.
United States Department of Labor, Pension and Welfare Benefits
Administration, Division of Technical Assistance and Inquiries,
200 Constitution Avenue NW, Suite N-5619, Washington, D.C. 20210,
(202) 219-8921, 1-800-326-2577 (TDD); 3660 Wilshire Boulevard,
Suite 718, Los Angeles, CA 90010, (213) 252-7556; 71 Stevenson
Street, Suite 915, San Francisco, CA 94119, (415) 744-6700.