Question

Heather is a full-time employee of the Drake Company and participates in the company's flexible spending plan that is available to all employees. Which of the following is correct?

Option 1: Heather is a part-time employee and cannot participate in the flexible spending plan.
Option 2: Heather, being a full-time employee, is eligible to participate in the flexible spending plan.
Option 3: Flexible spending plans are only for managers, so Heather cannot participate.
Option 4: Full-time employees like Heather can only participate in retirement plans, not flexible spending plans.

Answer 1

The statement is incorrect; full-time employees like Heather can participate in both flexible spending plans and retirement plans, such as 401(k)s and 403(b)s, which offer different benefits including tax deferral and investment options.

Step-by-step explanation:

The statement that full-time employees like Heather can only participate in retirement plans, not flexible spending plans, is incorrect. In fact, full-time employees often have access to various types of employee benefits, including flexible spending plans and retirement plans such as 401(k)s and 403(b)s. Flexible spending plans are typically used for pre-tax contributions toward medical expenses and dependent care, which are different from retirement plans.

Retirement plans, on the other hand, such as the defined contribution plans mentioned, allow both employer and employee to contribute a fixed amount to the worker's retirement account. These funds are then invested in a range of investment vehicles and are tax-deferred, offering the advantage of portability and potential real rates of return that help offset inflation costs for retirees. Therefore, employees are often encouraged to participate in both flexible spending and retirement savings plans to maximize their long-term financial planning and immediate tax-saving benefits.