Emerging benefits fall into three general categories: work and family benefits, financial benefits and other benefits.
Work and Family Benefits
Sabbatical Leave Plans
For many years, teachers have had the ability to take periodic paid sabbaticals. In 1986, employees in other occupations became eligible to defer a portion of their salary (and taxes) until they take a sabbatical. This occurred when Section 248(1) of the Income Tax Act was amended to restrict tax advantages enjoyed by many employees, who, in the past, elected to defer the receipt of a portion of their salaries. However, sabbatical plans were specifically exempted from these Section 248(1) salary deferral rules.
Under a sabbatical plan, an employee is entitled to defer a portion of salary for a limited period of time on a tax-neutral basis. The deferred salary is not taxable until the employee actually receives it. However, any investment income earned must be paid out to the employee each year. All earnings paid to the employee are taxable in the year.
Long-term Care
An attractive benefit that may become popular as provincial plans cut back coverage for nursing homes in Canada is long-term care coverage. This coverage provides financial support for elderly individuals who can no longer take care of themselves. Hospitalization and rehabilitation are not usually features of the coverage. The most obvious example of a long-term care facility is a nursing home.
All provinces have user fees for nursing homes, meaning that funding for accommodation is shared by the resident and the province. Although provincial health insurance plans cover a portion of the cost, the individual may be left paying a significant amount. For example, the cost to an individual for a private room in a government- subsidized Ontario nursing home exceeds $2,000 per month. Residents’ fees vary significantly from province to province, from a low of about $12,000 annually for a private room in Alberta to over $57,000 per year in Nova Scotia. However, where residents don’t qualify for government funding, or where they want control over the level of care received and the type of accommodations, the total fees are borne entirely by the resident or the resident’s family. Over the last five years, costs have climbed annually by an average of 3.7% in Canada’s residential care facilities for the aged.
Child Care
Child care would seem to be a natural benefit for inclusion in a flexible benefit program. Not only would it make the plan more attractive to employees, but employers might also benefit from reduced absenteeism and improved attraction and retention. However, few, if any, flexible programs include child care for one simple reason: there are no tax advantages to including this benefit within a flexible benefit program. Therefore, the employee is no better off arranging child care through the employer’s flexible program than outside it—unless, of course, the employer subsidizes the cost.
Contrast this to the situation in the United States, where an employee may have his or her salary reduced by up to $5,000 per year for reimbursement of child care (or other dependant care) expenses. No tax is payable on such reimbursements.
Elder Care
A growing concern of many employees is the need to look after elderly parents. Successful employers will find innovative ways of addressing the needs of the sandwich generation.
The programs adopted by employers to date are very similar to those used to address child care needs:
Information – Seminars or a library of written materials can help educate employees on the needs and problems of the elderly and describe what services are available.
Referral – A number of commercial and non-profit services are available to provide information to employees, covering the types of elder care available and providing specific information on local resources. The services range from telephone counselling to computerized databases that can be installed at the employer’s offices.
Flexible work schedules – Employers can help address employee needs for elder care by introducing flexible work hours.
Concierge Services
It is often stressful and distracting for employees who are working full-time to accomplish tasks required in their everyday lives. Some companies offer a concierge benefit for employees in an effort to help them improve their work/life balance. Concierge services can perform a variety of tasks, from grocery shopping and walking the dog to finding the best estimate from contractors or the most reputable auto mechanic. They can also be utilized for business purposes, such as gathering product information and finding an appropriate advertising firm.
Concierge services may be offered yearround, or in some cases may be available to employees specifically for the holiday season. Some companies have included concierge services as an option in their flexible benefit plans, or have allowed employees to direct flexible credits to buy these services.
Financial Benefits
Registered Education Savings Plans
Other than Registered Retirement Savings Plans (RRSP), Canadians have few taxeffective investment options available. One of the options is a Registered Education Savings Plan (RESP), which permits earnings on investments made for education to grow tax-free. Income earned in the RESP, plus any government grants paid into the RESP, are payable to the student beneficiary while attending a qualified education program. The student pays tax on the income when received, while the original capital is returned to the subscriber.
RESPs have been available for many years as individual arrangements. Recently, a number of RESP sponsors have designed group plans to be offered to employees through their employers. An RESP could be an attractive option in either a flexible or a traditional employee benefit program.
Financial Planning
Few flexible benefit programs offer financial planning options. Like many other benefits described in this article, there are a wide range of financial planning services available. They include:
Group seminars or lectures – These are frequently offered at lunch time and cover topics such as RRSPs, life insurance, investments, estate planning, and so forth. Topics related to the choices within the flexible plan (such as life insurance) can be scheduled to coincide with the annual flexible plan enrolment.
Individual counselling – One-on-one sessions between an investment or financial counsellor and the employee can be scheduled. Typically, these sessions are limited to executives, because of the high cost.
Group Mortgages
For many years, financial institutions have offered subsidized mortgages to their staff as an employee benefit. The benefit was usually tax-effective, because part or all of the subsidy was provided tax-free to the employee. In some cases, the employer could pay 3% or more of the mortgage interest and not generate a taxable benefit to the employee. In recent years, the interest in this benefit has declined, because there has been little or no tax-free benefit due to low interest rates.
The concept of tax-effective group mortgages was made available to all types of employers in the late 1980s, when several insurance companies developed group products. Under the group plans, the employee is free to negotiate the payment terms of the mortgage and the amortization period with the insurance company. The interest rate charged by the lender is usually a competitive current rate. If the employee leaves the company, the mortgage is converted to an individual mortgage.
Other Benefits
Home and Auto Insurance
Most employees have home and auto insurance through their broker or insurance agent. Does it make sense for an employer to offer group coverage as an option within a benefit plan? Many employers believe so and include these plans as part of a benefits program (flexible or otherwise). Group home and auto plans offer the convenience of payroll deductions, company selection of the insurer and, in some cases, lower rates for employees.
Critical Illness Insurance
Critical illness insurance provides a lump-sum payment if an insured individual is diagnosed with an illness specified in the insurance policy and the individual survives for a specified period of time. Coverage is generally available on an individual or group basis. Group coverage has not yet become popular, primarily because of the relatively high premium charged for the coverage, and because many employers and advisors believe this coverage duplicates disability insurance and therefore does not meet a compelling need.
Group Legal The Canadian Auto Workers (CAW) negotiated a group legal services plan for its members in 1984. Despite much publicity, few organizations outside the auto industry have adopted legal plans. Where plans are provided, the employee may have specified legal services—wills, home purchases, marriage contracts, and so forth—performed by a legal panel. Normally, the employee is not permitted to use the plan to sue the employer. The structure of a group legal plan is such that the employer pays a fixed fee per employee to the provider and the employee must use the services of the specified provider.
Car Leasing
Firms offering fleet-leasing policies to employers claim they offer significant savings to employees due to group purchasing power. Typically, the employee decides on a car and options, and then places an order with the fleet operator. Normally, there is a minimum number of months of instalments (six is common) that the employee must make before the balance can be paid off.
Wellness
Wellness has become an important focus of the overall health care package offered by employers. Employers are increasingly embracing the philosophy that improving employee health makes good economic sense. Studies have shown that for every dollar spent on workplace health programs, savings to the organization ranged from $1.50 to $3 or more. These savings are realized through reductions in disability days and sick leave, as well as the cost of healthcare and worker’s compensation. Besides cost savings, other desirable effects of wellness programs often include higher levels of productivity, and enhanced worker retention and engagement.
Linking wellness plans to flexible benefit plans can take the form of specific flexible credit allocations for exhibiting desired behaviour (e.g., completing a health risk assessment or participating in regular exercise) or a more subtle linking of philosophies between a wellness plan and the flexible benefit plan.
Robert J. McKay is an actuary and principal with Hewitt Associates in Toronto. bob.mckay@hewitt.com
Excerpted from the Canadian Handbook of Flexible Benefits. Copyright © 2007 by Robert J. McKay.
Excerpted with permission of the publisher John Wiley & Sons, Inc. This book is available at all bookstores, online booksellers and from the Wiley web site at www.wiley.ca, or call 1-800-567-4797.
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