Aflac Employees: Smarter Ways to Manage Taxes on Appreciated Stock
Healthcare Provider Update: Healthcare Provider for Aflac
Aflac primarily serves as a supplemental insurance provider, offering a range of health and life insurance products. While Aflac itself does not function as a traditional healthcare provider, its services include accident, critical illness, and hospital indemnity insurance. Policyholders can use these benefits to complement their primary health insurance, covering out-of-pocket costs that may arise from treatment received in various healthcare settings.
Potential Healthcare Cost Increases in 2026
As the health insurance landscape evolves, significant increases in healthcare costs are anticipated for 2026. A perfect storm of escalating medical expenses, combined with the potential loss of enhanced federal premium subsidies, is likely to result in some states experiencing premium hikes of over 60%. This dramatic rise could lead to average out-of-pocket premiums skyrocketing by more than 75% for a vast majority of enrollees in the ACA marketplace. With insurers taking aggressive measures to maintain profitability, including substantial rate increases, consumers may find health coverage increasingly unaffordable unless proactive steps are taken to mitigate these costs.
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'Aflac employees with concentrated stock positions may benefit from thoughtful tax planning that allows for tax deferral while balancing liquidity, compliance, and long-term compounding,' Wesley Boudreaux, a representative of The Retirement Group, a division of Wealth Enhancement.
'Aflac employees who hold highly-appreciated stock may want to consider tax-efficient strategies that help mitigate their liabilities while aligning with their overall retirement goals,' Patrick Ray, a representative of The Retirement Group, a division of Wealth Enhancement.
In this article, we will discuss:
How taxes can affect investment returns, particularly on concentrated stock positions.
Exchange funds and options-based strategies as methods for tax deferral and diversification.
Alternative planning techniques outside ETFs, including charitable trusts and gifting strategies.
By Carlos Hernandez, Wealth Enhancement advisor
When it comes to driving portfolio returns, many investors aim to keep management fees low by investing in low-cost index funds and exchange-traded funds (ETFs). While fees matter, however, the real culprit for lower-than-anticipated performance is taxes.
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Wealth Enhancement advisor Carlos Hernandez explains: 'By losing less to taxes each year, investors have access to more capital that can continue to compound over time. This makes tax deferral an important part of an effective financial plan.' Aflac employees looking for long-term growth strategies could benefit by understanding how to better manage their investment tax burdens.
Trade Money
One area where taxes can take a toll is on the sale of company stock or other concentrated investment positions. Aflac professionals looking to diversify could face significant capital gains taxes on an outright sale. One way to diversify without triggering immediate capital gains is through exchange funds. By contributing their highy-appreciated stock to a pooled fund, investors can trade their concentrated holdings for shares in a diverse basket of securities. This method can be used by Aflac employees who want to diversify while postponing taxable events.
Although this method allows for tax deferral, it also requires investors to hold the exchange fund for a period of time, typically seven years.
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This could create a challenge for investors who require liquidity. Additionally, these funds are often exclusively accessible to wealthy, accredited investors—something Aflac executives should carefully evaluate.
Funds Based on Options
Another way to mitigate taxes on the sale of highly-appreciated stock is by using options contracts. The idea is to hedge risk with put options while covering the cost of those puts by selling call options—a strategy called 'collaring'. From there, the strategy reverses, with investors selling put options and using the proceeds to buy call option on an equity or bond index.
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If managed effectively, this helps to diversify a concentrated portfolio while still maintaining liquidity.
Given the complexity of this strategy, meticulous planning is necessary. It's generally recommended that investors work with an experienced financial advisor before pursuing this approach.
Things to Be Aware of
Although these strategies can be beneficial for Aflac employees who hold highly-appreciated stock, caution is recommended. There are costs associated with these approaches, and potential liquidity risks. Additionally, the IRS may eventually contest such arrangements because their tax status has not been thoroughly examined—something Aflac retirees should keep top of mind.
'Tax drag reduction strategies can be effective, but they must be assessed through the lens of risk, liquidity, cost, and compliance,' warns Carlos Hernandez. What is appealing in theory must hold up to inspection in the real world.
Alternative Strategies
Although they show promise, investors with highly-appreciated stock or those looking to postpone gains have other alternatives besides exchange funds or options. Other tactics could include:
- Prepaid variable forwards (subject to IRS regulations, contracts to sell at predetermined terms in the future).
- Charitable remainder trusts (CRTs), which allow investors to donate appreciated stock to a charitable trust and receive a stream of regular income in return.
- Donor-advised funds (DAFs), which provide investors with a tax deduction for the fair market value of the appreciated stock they donate.
- Other gifting techniques, such as direct donations to charity or family.
Each has its own set of guidelines, advantages, and disadvantages. To limit unnecessary taxes or violating the constructive sale regulations, careful planning is necessary for Aflac professionals managing complex portfolios.
The Bottom Line
Although the movement to mitigate the tax burden on investments is not new, the instruments are changing. Both exchange funds and options-based structures offer investors a way to manage tax liabilities, especially for Aflac employees who hold highly-appreciated stock.
In the end, taxes are unavoidable. However, with the correct set of instruments, they can be controlled and postponed. 'The real value comes from aligning tax strategy with investment strategy,' summarizes Carlos Hernandez.
What type of retirement savings plan does Aflac offer to its employees?
Aflac offers a 401(k) retirement savings plan to its employees.
Does Aflac match employee contributions to the 401(k) plan?
Yes, Aflac provides a matching contribution to eligible employees participating in the 401(k) plan.
How can employees at Aflac enroll in the 401(k) plan?
Employees at Aflac can enroll in the 401(k) plan through the company’s HR portal or by contacting the HR department for assistance.
What is the eligibility requirement for Aflac employees to participate in the 401(k) plan?
Aflac employees are generally eligible to participate in the 401(k) plan after completing a specified period of service, as outlined in the employee handbook.
Can Aflac employees take loans against their 401(k) savings?
Yes, Aflac allows employees to take loans against their 401(k) savings, subject to certain terms and conditions.
What investment options are available in Aflac's 401(k) plan?
Aflac’s 401(k) plan offers a variety of investment options, including mutual funds, stocks, and bonds, allowing employees to choose based on their risk tolerance.
How often can Aflac employees change their contribution rate to the 401(k) plan?
Aflac employees can change their contribution rate to the 401(k) plan at any time, subject to the plan’s guidelines.
What is the vesting schedule for Aflac's 401(k) matching contributions?
Aflac has a vesting schedule for matching contributions, which means employees must work for a certain number of years before they fully own the employer's contributions.
Are there any fees associated with Aflac's 401(k) plan?
Yes, Aflac’s 401(k) plan may have administrative fees and investment-related fees, which are disclosed in the plan documents.
Can Aflac employees roll over funds from other retirement accounts into their 401(k)?
Yes, Aflac employees can roll over funds from other qualified retirement accounts into their Aflac 401(k) plan.
With the current political climate we are in it is important to keep up with current news and remain knowledgeable about your benefits.
Aflac provides a defined benefit pension plan, requiring specific age and service criteria for eligibility. The pension plan, Aflac Pension Plan, is calculated using a formula based on the employee's final average salary and years of service. Aflac’s 401(k) plan, named the Aflac 401(k) Savings Plan, matches employee contributions up to a certain percentage, supporting both traditional and Roth contributions. Employees are immediately vested in the 401(k) plan. [Source: Aflac Employee Benefits, 2022, p. 18]
Aflac has announced several significant updates in 2024. The company recently hosted a webcast to discuss its first-quarter financial results and future outlook, providing insights into its strategic direction amid economic challenges. The discussions highlighted Aflac's focus on financial protection and supplemental health insurance in the U.S. and Japan. Additionally, Aflac's 2023-2024 WorkForces Report revealed critical issues such as employee burnout and financial challenges, especially among Hispanic workers, which directly impact workplace retention and satisfaction. This information is crucial due to the current economic environment where employee well-being and financial stability are paramount. Employers must stay informed about such trends to effectively address workforce needs and mitigate risks associated with economic and political uncertainties (Aflac Investors) (Aflac Newsroom).
Aflac offers stock options and RSUs to its employees to drive performance and retention. Stock options allow employees to purchase company stock at a set price post-vesting, while RSUs vest over several years. In 2022, Aflac enhanced its equity programs with performance-based RSUs. The trend continued in 2023 and 2024, with broader RSU availability and performance-linked stock options. Executives and middle management are the primary recipients, ensuring alignment with long-term company goals. [Source: Aflac Financial Results 2022-2024, p. 56]
Aflac’s 2022 healthcare updates included expanded critical illness and accident care coverage, along with digital health tools. In 2023, the company enhanced its mental health support services and telehealth options. For 2024, Aflac’s strategy centered on providing innovative healthcare solutions and comprehensive wellness programs. The company aimed to address employee needs with a focus on comprehensive care and support. Aflac continued to refine its benefits package to improve employee satisfaction and engagement. Their approach reflected a commitment to integrating new health management solutions.
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