Small business owners have to be creative these days to attract and retain quality people, and thinking outside the box is a must when devising innovative benefits that would appeal to key employees — especially those in their 40s, 50s, and 60s.
Most of today's widely used employee benefits are tightly regulated, such as employer-subsidized health insurance plans or 401(k)s and other retirement programs. Deferred compensation plans generally work best for long-term employees, and today's very mobile workforce may not find such arrangements as attractive as workers once did.
So what can a small-business owner offer? Enter employer-provided, or "sponsored," long term care insurance (LTCI). For key employees ages 40 through 60, LTCI is one of the newest forms of employee benefits, and one which allows for broader discretion in how the business owner offers and subsidizes it.
LTCI is not a glamorous topic. The benefits for many workers, particularly younger employees, might not be used for 20 or more years, but many business owners might find that offering LTCI to employees can lower their taxes and provide a benefit of real value to boot.
The tax nuances vary, depending on the structure of the business, so it's important for you as an agent to have a good working knowledge of how LTCI is treated for tax purposes in the workplace. That way, even when you have limited time in which to make their case, you'll be able to provide a summary that includes accurate information about potential tax breaks and other benefits for the employer.
A business owner can offer LTCI to key executives and other employees without necessarily running afoul of ERISA and other labor laws, and paid LTCI can also be offered to highly compensated employees or to top performers.
Under the current tax law, there is not much tangible tax relief from the federal government for individuals who purchase LTCI on their own. The only real help comes when LTCI premiums (up to age-based annual caps; see Table 1, below) are bundled with other medical expenses. Then, the only portion that is deductible is the amount above 7.5 percent of adjusted gross income. Benefits received under a tax-qualified LTCI policy are, however, generally tax-free.
TABLE 1
Age of Insured Before the Close of the Year 2009 & Eligible LTCI Premium Deduction
