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Section 2 <br />ADVANTAGES AND DISADVAN:"AGES OF FSAS <br />ADVANTAGES <br />Employee Employer <br />1) expenses paid with pre-tax <br />dollars --taxes reduced <br />- federal <br />- state, if any (except <br />New Jersey, Pennsylvania, <br />Arkansas, and Alabama) <br />- FICA <br />2) completely voluntary pro- <br />gram; provides oenefit/ <br />tax flsr,ibility to <br />employees <br />1) payroll taxes <br />- FICA <br />- FUTA <br />- not workers, <br />reduced <br />compensation <br />2) employer gets float on <br />salary reduction deposits <br />until claims are reimbursed <br />3) helps attract and retain <br />employees <br />4) if desired, the employer may <br />keep any forfeitures arising <br />from left over account <br />balances <br />DISADVANTAGES <br />U to a Employer <br />1) "use it or lose it" --for- 1) modifications to payroll <br />feiture of unused rmounts system required <br />(carcful r,lanning and goad <br />ccmmt:nication required) <br />2) extreme limitations on 2) plan documents and admini- <br />ability to change after stratien required <br />start of plan year <br />3) could potentially reduce 3) other pay based plans (e.g., <br />social security (and perhaps retirement plan, disability) <br />unemployment compensation would have to be amended to <br />benefits) --typically base benefits on pay before <br />negligible impact salary reduction <br />3 <br />