The Defined Contribution Strategy

The Defined Contribution Strategy

Here’s how to implement the defined contribution strategy:

  • You can give them a “bump” in salary to help them pay for their insurance.
  • The bump CAN NOT be tax deducted on the employer’s end. In other words, you CAN NOT make it a line item as paying for health insurance (like you do/did when you pay for a group policy). It’s strictly an increase in salary.
  • By doing this, the employer and employee are taxed higher due to the increased amount in income. It’s a little bit of a “con” by going with this strategy, but that’s how you avoid any trouble with any potential fines.
  • If the employee does not use this bump for purchasing individual health insurance, there is nothing that you can do about it. You CAN NOT take away the increase in salary.
  • If the employee does not purchase health insurance, then this falls as a liability under their own personal responsibility. Then, they will be fined on their individual tax returns for NOT having insurance.
  • You have to offer the same “deal” to everyone. For example, everyone gets $300 or 50% up to $300. It has to be the same across the board for all employees. We recommend this percentage strategy as this evens the playing field for some employees that may be more expensive than others.
  • You CAN NOT pay these premiums out of the employer’s bank account.
  • If the employees’ pay for their premiums out of their own personal bank accounts, you’re fine.
  • If not, you will want to make sure to change this IMMEDIATELY.
  • THE ONLY EXCEPTION: The owners can pay for their individual insurance out of the company’s bank account & it will be deducted on their taxes.

So very simply said, if you say (for example)…hey everybody, we’re going to give you $200 or 50% up to $200 extra a month in your salary to help you pay for your health insurance. Reese/Bob will be here for a meeting/phone call. They’ll help you pick whatever plan is best for you. You’ll pay for it out of your personal bank account. If you choose not to purchase health insurance, you’ll be fined when you file your individual tax return.

Then, that’s it…you walk away…other than the bump in salary, it’s no longer your business, and it’s in the employees’ hands.

Additional Advice:

*If you wanted to move forward with the individual route, we will need to submit the application in by the 15th of the prior month’s effective date. For example, if you wanted a January 1st effective date, you would need the applications in by December 15th.

*If you have employees who want to purchase health insurance outside the Open Enrollment period, we must prove that they are a qualified special enrollee.