Health and Life Insurance Plans
Foremost among benefits is group medical insurance, through which employers offer a range of health insurance options for employees and their families. In most cases, employees pay a percentage of the cost of premiums, which vary according to the type and extent of coverage selected.

Common medical plan types include:

- Health Maintenance Organizations (HMO) - Members' health care is provided by doctors and hospitals within a defined network and coordinated by a primary care physician.

- Preferred Provider Organizations (PPO) - PPOs give members access to several networks of doctors and hospitals and allow them to visit out-of-network physicians for a higher fee.
 

- Point of Service (POS) - These plans offer a high degree of flexibility by combining features of both HMOs and PPOs.

- Indemnity - Subscribers choose their physicians without restriction and are reimbursed for medical expenses after the fact.

Some employers offer cafeteria or "flexible benefit" plans, which allow employees to choose between a set amount of cash and a benefit package of equal value. Employees may assemble the package themselves from a menu of options, usually consisting of core benefits and elective, secondary programs.

Flexible Spending Accounts (FSAs) allow employees to reduce taxes on money spent for uninsured health care or dependent care. Employees estimate the amount they will spend on related services and products for a given year; a percentage of the total is deducted before taxes from every paycheck. For example, on average for every $100 you contribute to a plan, you will save approximately $28 in taxes, which is based on paying 15% for federal income tax, 7.65% for FICA tax and 5% for state income tax. As expenses are incurred, the employee files receipts, and reimbursements are made for qualified purchases. Money remaining in the account at the end of the year is forfeit.

Group life insurance is often provided at no charge to employees. In general, policies provide coverage equal to one year's salary. Depending on the plan, the policy may encompass accidental death and dismemberment. The employer may give employees the option of purchasing supplemental coverage for himself/herself as well as for eligible family members.

Group disability insurance provides income in case of non-work related illness or injury. While specific provisions vary by plan and company, most disability plans provide at least 60 percent of an employee's base pay. Some employers provide disability coverage at no charge, and others offer it to employees willing to pay the cost. There are two basic types of coverage:
 

- Short-Term Disability applies when an employee is unable to work for eight days to six months.
 

- Long-Term Disability applies when an employee is totally disabled and unable to work for more than six months.

Employee Stock Options
Many corporations offer stock option plans, which allow employees to purchase prescribed blocks of company stock at a specific price within a given timeframe. If the stock price rises during the period, employees may choose to "exercise the option" and sell the stock at a profit. There are several types of stock options, which are also known as "equity compensation"; some are available only to corporate executives.

Incentive Stock Options (ISOs) qualify for favorable tax treatment; i.e., employees who purchase company stock under the auspices of an ISO do not pay tax on profits until the stock is sold.

Nonqualified Stock Options have two disadvantages in comparison to ISOs:
 

- An employee exercising nonqualified stock options must report taxable income when he/she exercises the option to buy.

- Income from nonqualified stock options is treated as compensation, which typically carries a higher tax rate than capital gains.

Employee Stock Plans
Employees in many companies have the opportunity to purchase shares of the company's stock at a discounted price during a specified period of time. Such programs are called Employee Stock Purchase Plans (ESPPs). Under the terms of an ESPP, an employee may receive a discount of as much as 15 percent. Plans also provide favorable tax treatment if they meet legal standards.

The "offering period," during which discounted stock may be purchased, may be as short as three months, but usually lasts between six and 24 months. Employees must use their own cash to buy stock through an ESPP, and they are subject to financial loss if the value of the stock declines. There are several types of stock plans, some of which are described below.

A qualified 423 ESPP enables employees to purchase company stock at a discount without paying tax on the discount at the time of purchase.

A nonqualified ESPP does not provide the tax advantages of a qualified plan.

Employee Stock Ownership Plans (ESOPs) are qualified benefit plans that consist mostly or entirely of company stock. Employees do not purchase shares; rather, the employer contributes shares to an account, which vests and increases as the employee's seniority with the firm grows. Employees usually receive accumulated stock shares when they leave the company, although distribution may take place earlier.

Phantom stock plans, also called "shadow" or "unit" plans, are stock-based incentive programs usually restricted to a corporation's executives. The plans provide bonuses, based on increases in the market price of the company's stock, that offer many of the same tax benefits as qualified stock option plans. Companies usually place a limit on the number of units that may be awarded to an employee.

Deferred Compensation Plans
Deferred compensation plans enable an employee to defer the payment of earned wages until a given date in the future. In many cases, the money is invested in cash value life insurance in the employee's name. The accrued funds are usually made available to the employee upon retirement. If the insured dies before retirement, the policy pays the beneficiary.
 

Qualified Deferred Compensation Plans provide tax benefits for both employers and employees. Employers can deduct the amount contributed to the plan, while employees pay no tax on the funds until they are distributed. Further, distributed money from a qualified plan is usually eligible for rollover to an IRA or other qualified plan. Qualified Deferred Compensation Plans must be made available to all employees, and the amount of employer contributions is limited.

Nonqualified Deferred Compensation (NQDC) plans lack many of the tax benefits of qualified plans, but they allow employers to contribute an unlimited amount to the plan and to designate specific employees - usually top executives - as participants. For that reason, large corporations generally use the plans as incentives for executives.

Types of NQDC plans include the following.
 

- Section 457 plans are similar to 401(k) plans, but may be offered only by eligible employers, such as government and tax-exempt organizations. The programs provide supplements to pension plans for select employees.

- Top-Hat plans are reserved for a company's senior, most highly paid executives as a means of attracting and maintaining executives.
 

- A Rabbi Trust, named for the first such arrangement, involves creation of a trust whose assets are subject to claims by the employer's creditors.
 

- A Taxable Trust is protected from creditors, but taxes must be paid on income at the time contributions are made.

Understanding Your Options
To ensure that you get the maximum advantages from employer benefits available to you, take the following steps.
 

Read all benefits-related material as it is provided.
 

Consult your human resources representative or benefits office with questions about benefits plans.
 

Discuss options with your family, and select the most relevant coverage offered.

Periodically review your active benefits selections to guarantee that they suit your current circumstances.

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State securities regulators forecast that investors will be challenged with increasingly complex and confusing investment frauds and identified the Top 10 schemes investors are likely to see in 2004. New to the North American Securities Administrators Association's (NASAA) annual survey of state securities enforcement officials are mutual fund practices, senior investment fraud and variable annuities.

The following ranking of NASAA's Top 10 scams, schemes and scandals for 2004 is based on the order of prevalence and seriousness as identified by state securities regulators: 1) Ponzi schemes, 2) senior investment fraud, 3) promissory notes, 4) unscrupulous broker/dealer representatives, 5) affinity fraud, 6) insurance agent securities fraud, 7) Prime bank/high-yield investment schemes, 8) internet fraud, 9) mutual fund business practices and 10) variable annuities.

NASAA has created an interactive Fraud Center on its Web site. The center features details of NASAA's Top 10 scams, schemes and scandals; tips on how to detect con artists and avoid becoming a victim; an Investor "Bill of Rights;" instructions on how to file an investment-related complaint; and contact information for each state securities regulator.

NASAA's 2004 Top 10 List of Scams, Schemes and Scandals
(based on a survey of state securities enforcement officers and regulators)

1. PONZI SCHEMES
Named for swindler Charles Ponzi, who in the early 1900s took investors for $10 million by promising 40 percent returns, these schemes are a perennial favorite among con artists. The premise is simple: promise high returns to investors and use money from previous investors to pay new investors. Inevitably, the schemes collapse and the only people who consistently make money are the promoters who set the Ponzi in motion. Con artists typically attribute government intervention as the reason why new investors didn't get their promised returns. In Mississippi last year, a Tennessee attorney and a Mississippi securities dealer pleaded guilty to 58 counts of investment fraud for their role in a Ponzi scheme that bilked 41 investors from four states out of $10.2 million. Authorities said the victims were told they were investing in a money-trading program that, in fact, did not exist.

2. SENIOR INVESTMENT FRAUD
Volatile stock markets, low interest rates, rising health care costs and increasing life expectancy combined to create a perfect storm for investment fraud against senior investors. State securities regulators said older investors are being targeted with increasingly complex investment scams involving unregistered securities, promissory notes, charitable gift annuities, viatical settlements and Ponzi schemes all promising inflated returns. Pennsylvania securities regulators last year shut down a Ponzi scheme that targeted seniors, but not before 13 Philadelphia-area investors had lost nearly $2 million from their pensions and IRAs. In Arizona, the Arizona Corporation Commission ordered a Scottsdale company and four individuals to return more than $15 million to mostly senior investors and pay penalties of $45,000 to the state in a case involving "CD alternatives" earning up to 8.5 percent.

3. PROMISSORY NOTES
A long-time member of the Top 10 List, these short-term debt instruments often are sold by independent insurance agents and issued by little known or non-existent companies promising high returns - upwards of 15 percent monthly - with little or no risk. When interest rates are low, investors often are lured by the higher, fixed returns that promissory notes offer. These notes, however, can become vehicles for fraud when the issuer of the note has no intention or capability of ever delivering the returns promised by the sales person. In November 2003, for example, Grammy-nominated polka star Jan Lewan pleaded guilty to charges that he defrauded investors in 21 states through the sale of promissory notes. State authorities said Lewan, who defected from Poland in 1979 and launched a successful career that included performances before President Reagan and Pope John Paul II, illegally persuaded investors to invest in a series of failing business ventures. Lewan offered promissory notes that were supposed to pay an interest rate of 12 to 20 percent. Authorities said investors lost between $2 million and $2.5 million. Lewan sold the promissory notes during a period of time when he was under a five-year ban by the Pennsylvania Securities Commission barring him from selling securities in the state. New Jersey authorities also acted against Lewan in 2003, fining him $950,000 and prohibiting him from selling securities in the state. Connecticut securities regulators are also investigating Lewan.

4. UNSCRUPULOUS BROKERS
Despite the stock market's rebound in 2003, state securities regulators say they are still receiving a high level of complaints from investors of brokers cutting corners or resorting to outright fraud to fatten their wallets. In October 2003, US Bancorp Piper Jaffray agreed to pay $2.6 million to settle a complaint by the state of Montana alleging unethical business practices and fraudulent securities dealing by the investment firm and one of its brokers. State regulators accused Thomas J. O`Neill, who was a broker in the firm's Butte office, of making more than 6,000 unauthorized trades for mostly elderly customers between 1997 and early 2001. They said some trades were made for a customer who was in a coma and again after he died. Authorities said O`Neill generated commissions for himself and the firm through the illegal trades that transformed mostly conservative retirement investments into risky portfolios.

5. AFFINITY FRAUD
Con artists know that its only human nature to trust people who are like yourself. That's why scammers often use their victim's religious or ethnic identity to gain their trust and then steal their life savings. No group seems to be immune from fraud. In November 2003, authorities arrested five people accused of defrauding evangelical Christians of $160 million in three years and using the money to live extravagantly. Federal and state investigators charged that a California family promoted an affinity fraud scheme through evangelical leaders and groups, targeting people who shared religious beliefs and common ethnicities. A joint effort involving the FBI, the SEC, the IRS and the Texas State Securities Board, brought criminal and civil charges to halt the scheme, which promised returns of 25 percent within three months.

6. INSURANCE AGENTS AND OTHER UNLICENSED SECURITIES SELLERS
While most independent insurance agents are honest professionals, too many are lured by high commissions into selling fraudulent or high-risk investments, such as promissory notes, ATM and payphone investment contracts and viatical settlements. The person running the scam instructs the independent sales force - usually insurance agents but sometimes investment advisers and accountants - to promise high returns with little or no risk. For example: Arizona securities regulators in 2003 obtained a $4.3 million final judgment against a Scottsdale company and two insurance agents who fraudulently sold charitable gift annuities to mostly senior investors who were told their money would be invested in secure accounts. Instead it was placed in high-risk, speculative investments while the insurance agents helped themselves to $1.3 million in commissions. California authorities in 2003 ordered several insurance agents to stop selling viatical investments - interests in the death benefits of terminally ill patients that are always high risk and sometimes fraudulent. The agents promised returns as high as 150 percent in three years, and guaranteed the investment through a "fidelity" bond, but failed to tell investors that the bond was issued by a company incorporated in Vanuatu, South Pacific that is not licensed by to issue bonds in California.

7. PRIME BANK SCHEMES
A perennial favorite of con artists who promise investors triple-digit returns through access to the investment portfolios of the world's elite banks. The negative publicity attached to these schemes has caused promoters in recent cases to avoid explicitly referring to Prime banks. Now it is common to avoid the term altogether and underplay the role of banks by referring to these schemes as "risk free guaranteed high yield instruments" or something equally deceptive. In 2003, five Oklahoma men were convicted on fraud charges stemming from a Prime bank scheme in which 5,000 investors lost $14.6 million.

8. INTERNET FRAUD
With the Internet becoming a common part of daily life for increasing numbers of people, it should be no surprise that con artists have made cyberspace a prime hunting ground for victims. Internet fraud has become a booming business. The most recent figures show cyberfraudsters took in $122 million in 2002, according to the Federal Trade Commission. The Internet has made it simple for a con artist to reach millions of potential victims at minimal cost. Many of the online scams regulators see today are merely new versions of schemes that have been fleecing offline investors for years. In November 2003 various federal, state, local and foreign law-enforcement agencies targeted cyberfraudsters and netted 125 arrests and more than 70 indictments. Operation Cyber Sweep identified more than 125,000 victims with losses estimated to exceed $100 million. Investors should ignore e-mail offers from individuals representing themselves as Nigerian or West African government or business officials in need of help to deposit large sums of money in overseas bank accounts.

9. MUTUAL FUND BUSINESS PRACTICES
Although mutual funds play a tremendous role in the wealth and savings of our nation, ongoing scandals throughout the industry clearly demonstrate that some in the mutual fund industry are putting their own interests ahead of America's 95 million mutual fund shareholders. State securities regulators, the SEC, NASD and mutual-fund firms themselves have launched a series of inquiries into mutual fund trading practices. To date, more than a dozen mutual funds are under investigation and several mutual funds and mutual fund employees have either pleaded guilty, been charged or settled with state regulators. State and federal investigations have uncovered sales contests where investors have been steered to funds paying higher commissions to brokers; abusive trading practices, such as "market timing," that may cost tradition buy-and-hold investors more than $5 billion each year; and illegal trading practices, such as "late trading," that may cost investors $400 million each year.

10. VARIABLE ANNUITIES
Sales of variable annuities have increased dramatically over the past decade. As sales have risen, so too have complaints from investors. Regulators are concerned that investors aren't being told about high surrender charges and the steep sales commissions agents often earn when they move investors into variable annuities. Some investors also are misled with claims of guaranteed returns when variable annuity returns actually are vulnerable to the volatility of the stock market. The benefits of variable annuities - tax-deferral and death benefits among others - come with strings attached and additional costs. High commissions often are the driving force for sales of variable annuities. Mississippi securities regulators moved last year against a licensed securities broker in the state who rang up commissions of approximately $1 million within a 15-month period largely through sales of variable annuities. Often pitched to seniors through investment seminars, regulators say these products are unsuitable for many retirees. Variable annuities are considered to be securities under federal law and the laws of 17 jurisdictions. Most states consider variable annuities to be insurance products. NASAA is encouraging changes in state laws that would allow state insurance regulators to continue to oversee the insurance companies that sell variable annuities while authorizing state securities regulators to investigate complaints about variable annuities and to take action against the companies and individuals who sell them.
 

Source: NASSA Fraud Center, January 4, 2004 - Copyright © 2004. North American Securities Administrators Association. All rights reserved.

The six organizations collaborating on the project are the American Institute of Certified Public Accountants (AICPA), Certified Financial Planner Board of Standards (CFP Board), Financial Planning Association (FPA™), National Association of Personal Financial Advisors (NAPFA), National Endowment for Financial Education® (NEFE®) and Society of Financial Service Professionals (SFSP).

"Together, these organizations represent the core of the financial counseling community," says Nan Mead, director of communications at NEFE and chair of the Project for Financial Independence task force. "By collaborating, we are able to institute a national network of financial advisors eager to introduce financial planning to individuals who may not have access to it otherwise."

Consumers who may be eligible to receive pro bono assistance under the Project for Financial Independence must meet one of the following criteria:

Low-income individuals (as defined by the U.S. Census Bureau Web site at http://www.census.gov/hhes/poverty/threshld/thresh01.html)
 

Enlisted military personnel
 

Those who are facing an immediate financial crisis (for example, a natural disaster, long-term illness, death of a family member, job loss, etc.)
 

Those who are struggling with significant indebtedness or recovering from bankruptcy

In order to reach these individuals, the Project for Financial Independence will begin by working directly with three national charitable organizations, Habitat for Humanity, Mothers Against Drunk Driving (MADD) and Volunteers of America. As the project grows, more charitable organizations will be invited to participate. Each will identify clients who could benefit from no-cost financial advice and help link them to a local volunteer financial advisor belonging to one of the four membership organizations participating in the project. These include the AICPA, FPA, NAPFA and SFSP.

Although the Project for Financial Independence initially will provide services only through nonprofit organizations, its sponsors eventually plan to work directly with individuals, linking them to volunteer financial advisors by way of a dedicated Web site at www.consultaplanner.org. Currently, the site is available as a resource for financial advisors who have volunteered their services for the Project for Financial Independence and charitable organizations. Members of the public seeking self-help personal finance information also can benefit from the site.

For more information about the Project for Financial Independence, log on to http://www.consultaplanner.org.

Securities Exchange Commission Seeks Your Input on Proposed Mutual Fund Disclosure Forms

The Securities Exchange Commission is considering whether to require broker/dealers to disclose more information about costs and conflicts of interest to investors who purchase or sell interests in mutual funds, 529 plans and certain other securities, such as variable annuities. The SEC welcomes your thoughts on this issue and seeks your help in evaluating whether the standardized disclosure forms it has drafted will be informative and useful to investors.

This is an opportunity for you to make your voice heard on an important regulatory issue that affects investors.