In today’s working world employee benefits have become an essential offering from businesses that can set your company apart from the competition. Whilst companies focus on a comprehensive healthcare package. Other add-ons, such as employee savings accounts are bonuses that can go a long way with your workforce. Employee savings accounts offer tax advantages, help people save money, and generally contribute to the overall financial stability of workers. While you are certainly not required by law to provide these types of accounts to your employees. By enhancing their quality of life, employees will be generally less stressed, more productive and appreciative of you.
The specifics of different benefit plans can be confusing and overwhelming for the average person. Our team of experts has put together a guide to help you understand the most common savings accounts. Including Health Savings Accounts (HSAs), Flexible Savings Accounts (FSAs), Health Reimbursement Arrangements (HRAs), Dependent Care Flexible Spending Accounts (DCFSAs), retirement accounts, and more. When it’s all said and done, you’ll have a solid understanding of the key benefits, downfalls, and major differences between a variety of savings options. Enabling you to make an educated decision for your business.
Health Savings Accounts (HSAs)
HSAs are medical savings accounts with tax-advantages. Employees use these accounts for certain qualifying health expenses. This type of account is generally only available to those individuals who enroll in a High-Deductible Health Plan (HDHP).
Benefits
- Tax Advantages: These accounts are tax-deductible, meaning that the earnings will grow without being subject to federal income tax. Additionally, there are no taxes when individuals withdraw from these accounts to pay for qualifying expenses.
- Flexibility: HSA’s are owned solely by the employee, making it very easy to keep your funds and account when changing jobs.
- Saving Potential: With these accounts, employees have the opportunity to build funds for the future to put towards medical costs, which can alleviate lots of stress.
Downfalls
- HDHP Required: Only employees who are enrolled in qualifying HDHPs will be able to open and contribute to one of these accounts.
- Withdrawal Restrictions: Until you reach the age of 65, all funds must only be used for certain medical expenses. If you withdraw money for non-medical expenses, you will face penalties.
Flexible Spending Accounts (FSAs)
FSAs are pre-tax accounts, meaning there’s no tax on the contributions. The money in these accounts can be allocated for a number of healthcare expenses but are mainly used for out-of-pocket costs. Employees make the contributions.
Benefits
- Tax Benefits: Since the contributions made to an FSA are made before taxes, employees’ taxable income will in turn be reduced. Without taxes, employees can grow their funds quicker too.
- Free Use: FSAs are generally meant to be used with the plan’s year. In most cases, employees will be able to use the full annual amount. Even if the full amount hasn’t been contributed yet.
- Variety of Uses: The money in FSAs can be used for healthcare expenses like medical, vision, and dental. Specific uses include copayments, deductibles, prescription drugs, medical devices and more.
Downfalls
- Use it or lose it: With an FSA, if you don’t use your funds by the end of the plan year, they will in turn be forfeited. In some cases there can be grace periods, or carryover policies, but they are not as common.
- Employer Managed: Unlike HSAs as the employer, you will set the FSAs contribution limits. While this can be good for employers, it makes things less flexible for employees.
- Cannot Transfer: FSAs usually cannot be transferred, when an employee switches jobs, meaning they will lose their unused funds.
- Contribution Limit: There is a certain amount of money, set by the IRS that can be contributed every year. You can not go over this set amount.
Health Reimbursement Arrangements (HRAs)
HRAs are accounts set up by employers that are meant to reimburse employees for a variety of eligible out-of-pocket health expenses. In some cases, they can pay for health insurance plan premiums.
Benefits
- Controlled by Employer: As a business owner, you will have full flexibility in the design of your HRA, so you can make it align with your finances, and employee preferences.
- Tax Benefits: Any contribution you make will be tax deductible. On top of that, the reimbursements that employees receive will be tax-free.
- No Contribution Limit: These accounts don’t have any annual contribution limit, giving you full flexibility to do as you please.
Downfalls
- Employer Funded: As the employer you will be responsible for funding this type of account. The upside is that any unused funds will go back to you after the plan year ends.
- Not Portable: These accounts aren’t portable. Meaning that employees who change jobs will not be able claim leftover funds anymore.
Dependent Care Flexible Spending Accounts (DCFSA)
DCFSAs are a specialized type of Flexible Spending Account. They’re for employees to set aside money for qualified dependent care including children or adult dependents.
Benefits
- Pre-Tax: The contributions are made pre-tax, which can help reduce employees’ taxable income.
- Flexible Use: These funds can be used at any point of the plan year. Like regular FSAs, the full year’s contributions can be used even if it hasn’t all been contributed by the employee yet.
- Range of Uses: The money in a DCFSA can be used for many different dependent-related expenses. This makes them a great option for employees with families.
Downfalls
- Annual Limits: These accounts have a set limit put in place by the IRS. Therefore, limiting the amount of money that employees can contribute.
- Specific Use: Unlike FSAs, these accounts can only be used for dependent expenses, also limiting employee flexibility.
- Use it or lose it: The use it or lose it rule also applies to DFSAs, meaning employees will usually have to forfeit unused funds after a plan year ends.
401(k) Retirement Savings Accounts
While there are a number of different retirement savings accounts, the 401(k) is the most traditional. And going into all of the other retirement options is a long discussion for another day. 401(k) accounts help employees save for their retirement by taking small portions of their paychecks and attributing it to these funds.
Benefits
- Employer Matching Options: A common practice with 401(k) accounts is for employers to match the percentage of contributions that the employee is making. For example, if an employee puts 4% of every paycheck into their 401(k), if the employer matches it, they will really be getting the amount of 8% of their paycheck, with only 4% removed.
- Tax Free Growth: Until someone withdraws their money, the contributions made to a 401(k) are tax free.
- Future Planning: These accounts will help your employees plan and save money for their retirement years.
Downfalls
- Restricted Use: Since the fund is specifically meant for retirement, if employees withdraw money before they are 59 ½ years old, they will be hit with large penalty fees. With that said, there is really no immediate use for these funds.
- Risk: Ultimately, a 401(k) is an investment. And like most investments when there are fluctuations in the market, it can negatively affect the account balance.
Other Types of Accounts
While the following accounts are not quite as common as the above mentioned one’s, they are still equally important and can enhance the quality of life of your employees.
Educational Assistance Programs
Educational Assistance Programs are sponsored by employers. They help employees who need to pay for certain educational expenses. Some of these expenses include: books, equipment, supplies, fees, tuition and more. These funds are oftentimes tax free, and they encourage employees to develop new skills and knowledge. Educational Assistance Programs can be a great way to entice new employees, since they aren’t common.
Commuter Spending Accounts (CSAs)
A Commuter Spending Account is a benefit that allows employees to put aside pre-tax contributions for transportation and other commuting expenses. Things like parking, public transportation and more are all included. If you offer this type of account, your employees will be able to save money on their commute, and you will in turn be contributing to a more sustainable environment.
Wrapping it All Up
While it’s easy to overlook employee savings accounts, as an employer, adding this benefit to the arsenal will make your workforce happier. And more likely to work harder in the long run. Offering these types of accounts enables employees to save money, without taxes in most cases. Whether it’s an account for health expenses, a retirement account or anything else. You will be helping employees become more financially free, ultimately reducing their stress levels.
If you are a business owner who is on the hunt for a great employee benefits plan at an affordable rate, Group Health Quotes is your one-stop destination. Our quick and simple quoting process allows you to see the most competitive local plans. Each of which have comprehensive benefit packages. Our team of licensed insurance professionals will guide you along the way. Making sure that you leave feeling confident with your decision. If you’d like to learn more, or receive a quote today, simply fill out a form, or give us a call at 888-571-0291.
