Employee Benefit Solution - Finsolnet

By: The Financial Solution Network  09-12-2011
Keywords: Financial Planning, Retirement Funding

The Finsolnet concept aims to provide integrated solutions for employers, employees and individuals. It integrates the knowledge of a wide range of specialists from a variety of disciplines to implement 'best solutions'.

One of the key areas on which solutions are provided is the optimisation of financial provision and financial planning for employees. Finsolnet actively encourages the implementation of Total Cost strategies not only as accounting exercise but as a fundamental change to Human Resource Management. Total cost to company policies has a profound impact on the financial position of both employer and employee.

Employer liability is capped:AIDs related claims will result in increased employee benefit costs. Employers will no longer be responsible for these increases. Total Cost policies transfer this liability to employees.

Employee Benefits Individualized and Managed Better: Strategies are implemented to improve the value of remuneration. by integrating needslimit the potential Increases of risk benefits costs Employees pay employee benefit costs out of their total cost budget. such as death and disability are fully for the employee's account.

Optimising Total Cost

The effective implementation of Total Cost Strategies is more than an accounting exercise. To optimise the benefits of Total Cost remuneration, it is essential to implement an integrated process of policy and benefit review linked to individual employee needs. The following process integrates and optimises employee benefit adjustments, individual needs analysis and remuneration structuring to SARS requirements:

  • Policy reviews:
    Amend Human Resource, Industrial Relations, Remuneration and Employee Benefit policies to implement Total Cost. Integrate employee benefits and total remuneration within a total cost to company policy.
  • Financial Administration:
    Adjust accounting, tax, PAYE and payroll administration to ensure accurate, tax effective Total Cost implementation. Improve administration to ensure high level of service and transparency and individual accounting. Provide direct linkage to payroll deductions and employer and employee internet access
  • Individualised Retirement Benefits: Develop benefits that are flexible and individualised to accommodate individual employee needs. Focus employee benefits on retirement provision. Total Cost remuneration policies require individualised retirement fund administration, with individual member accounts, investing in individual risk profiled investment portfolios.
  • Maximise retirement funding deductibility:
    Define pensionable income as 83% of total cost to ensure maximum retirement funding contributions. Consider a two-fund approach incorporating a pension fund for employee contributions and a provident fund for employer contributions.
  • Prefund Medical Aid:
    Consider deferred compensation to pre-fund medical aid after retirement.
  • Individualised risk benefits:
    Limit the AIDS risk inherent to group underwriting. Group risk benefits should be managed to reduce the AIDS liability. Ideally individually underwritten benefits should be considered. These may initially be more expensive. However, individual contracts provide age, health, and lifestyle specific premiums with no cross subsidisation. They are ring-fenced for AIDS claims, guaranteed and totally portable.
  • Prioritise Contributions:
    An individual needs analysis of death, disability, medical and retirement needs must establish the contribution priorities of the employee prior to structuring
  • Utilize maximum deductible contributions by employee:
    Employees may contribute up to 7.5% of approved remuneration. Contributions to Income benefits can be deducted by individual taxpayers and should ideally not be include in the Total Cost structured contributions to retirement funding. Individualized death benefits should also be included in retirement annuity contributions where possible
  • Offer flexible investment choice:
    Manage employee investment expectations by offering clear risk mandates that are actively managed
  • Structure Remuneration:
    Negotiate a revised remuneration structure to satisfy needs identified by the individual needs analysis, using tax efficient option offered by employee benefits where appropriate.
  • Document the negotiated Total Cost structured:
    To ensure employer compliance of SARS PAYE requirements the whole process of offer and acceptance of the structuring remuneration components must be documented.
  • Annual review:
    To incorporate changes in circumstance and legislation the Total Cost structuring should be reviewed annually. Provide effective communication to all members supported by daily pricing and benefit illustration via the internet.

Maximum Retirement Funding Deductions

Remuneration policy and employee benefits should be changed to enable e employees to fully utilize the maximum employer deduction of 20% of approved remuneration for retirement funding. This includes all employer contributions to employee's pension, provident and medical aid fund. There is no additional cost to the employer. The employee's position is, however, greatly enhanced. The changes should include:

  • Define Pensionable income as 83% of Total Cost:
    Ensures that the employer can offer employees the opportunity to structure employer contributions up to 17% of Total package. This is equal to 20% of approved remuneration
  • Offer both Pension and Provident Fund:
    Employees can only deduct contribution to a pension fund. The maximum employee contribution is 7.5% of approved remuneration plus R1800 annual arrear contribution. However provident funds offer 100 % access to of the capital and are the preferred funding vehicle for employer contributions. These contributions are structured as part of the Total Cost package.
  • Employer medical aid contribution :
    Employer contribution is included in the 20% maximum employer contribution allowed for retirement funding. As new rules allow employees to deduct these from their tax, employers should no longer be making any contributions.
  • Deferred Compensation / Medical Aid pre-funding:
    C an BE added to the structuring options. Up to 10% of gross remuneration may be structured in this way.

Finsolnet Facilitates the Process

Through its integrated multi-disciplinary associates the Network can support the employer through the whole process. Such an integrated approach requires Solution Providers to manage on an ongoing basis the following solutions:

Employer:
  • HR Policy
  • HR Administration
  • Employee Benefits
  • Tax Planning and Administration
  • Payroll and IT
Employee:
  • Individual Needs Analysis
  • Individual Assurance and Insurance
  • Total Cost Structured Remuneration
  • Estate Planning

EB Administration Process


1. HR offers participation to Employee
2. Employee discuss needs with planner
3. Planner structures remuneration to incorporate EB benefits
4. Human Resources:
4.1 Incorporates into payroll
4.2 Changes participation detail on internet
5. Payroll transfers contributions to Fund
6. Fund allocated to individual account

Keywords: Financial Planning, Retirement Funding

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