Also visit our Health Care Reform Resource Page, the Retirement Plans Resource Page, the Wellness Resource Page and the Workplace Flexibility Resource Page.
For links/summaries to some of the best external compensation /benefits stories on the web, see below.
Businesses Chafe at Proposed Overtime Rules
Business groups and corporate lawyers assailed a White House plan to expand overtime eligibility to millions more workers, saying the move could hurt job growth, worker productivity and the economy, reports USA Today. Department of Labor rules would set a minimum amount of executive work employees must perform in order to meet the classification, making millions of workers newly eligible for overtime.
Richard Alfred, chairman of Seyfarth Shaw's national wage-and-hour practice, said most employers will respond to the new directive by limiting the hours of existing workers to avoid paying costly overtime. "This won't necessarily translate into more pay in the pockets of those workers," he noted. Instead, companies will hire more workers.
- Some firms could take a different approach, reducing the basic wages of management workers to account for the new overtime expenses and leaving employees no better off, said Dan Yager, president and general counsel of the HR Policy Association.
DOL to Expand Mandatory Overtime for Millions of Workers
Department of Labor (DOL) is issuing proposed regulations to expand overtime pay requirements to millions of workers currently classified as "executive or professional" employees, reports Foxnews.com.
The new regulations to the Fair Labor Standards Act will mandate that businesses provide overtime pay for those who work jobs as varied as fast-food restaurant managers, loan officers, and computer technicians. Currently, businesses are prohibited from denying overtime to a salaried worker making less than $455 per week. The rules that DOL will propose would increase that salary threshold.
- Business groups warn that the planned change will lead employers to reduce staff or cut pay.
Critics Versus Defenders of Target-Date Funds
Critics have charged that plan sponsors often fail to properly vet the target date funds they offer through their 401(k) plans, lazily sticking with a few from the Big Three providers—Fidelity Investments, T. Rowe Price and Vanguard Group, which together held 73 percent of the target date fund market as of January, reports Institutional Investor. And they note that most target-date funds are actually "funds of funds," with the underlying funds limited to the fund provider's own proprietary offerings.
There's a big gap between what the Department of Labor expects plan fiduciaries to do and what they're actually doing as regards conducting due diligence when selecting target date funds, says ERISA attorney C. Frederick Reish. "These kinds of gaps are red flags," he warns.
- Others defend the Big Three's dominance. "Few companies can break through and build really good 401(k) platforms properly," says Todd Cipperman of Cipperman Compliance Services. "I can't say there's anything untoward that three companies own the market. A lot of companies got out."
In 401(k) Plans, Match Formulas Make a Big Difference
The design of 401(k) plans can vary significantly, and even small differences in an employer match formulas can add up to hundreds of thousands of dollars over the course of a career, reports Bloomberg Businessweek.
Consider an employee with a starting salary of $31,000 at age 25, who is then granted annual pay increases of 3 percent, reaching a final salary of $101,123 at age 65: Assume she made the average contribution for her age and that the portfolio generated an annual return of 5 percent. Under those conditions, she would have $999,231 if she worked at DuPont, where the top corporate match is 6 percent and the company kicks in an additional 3 percent of pay (DuPont also counts bonus pay when calculating its match). The same person would end up with $504,684 if she worked at Wynn Resorts, where the maximum match is $500, according to the Employee Benefit Research Institute.
- McDonald's match is surprisingly generous: 300 percent of the first 1 percent employees save in their 401(k) accounts. The company also matches 100 percent of the next 4 percent of pay an employee contributes, and in the past two years also has made a discretionary profit-sharing contribution of 2 percent.
(To learn more about 401(k) matching formulas, see the SHRM Online article "401(k) Match: 'Thresholds' Drive Participation More than Rates.")
Boeing to End Pensions for Non-Union Workers
Boeing will end its pension plans for non-union employees by 2016 in an effort to curb the company's growing pension costs, reports CNNMoney.com. The change in retirement plans will impact 68,000 workers including managers and executives.
Beginning in January 2016, Boeing will contribute 9 percent of an employee's eligible income to their 401(k) account. That percentage will decrease by 1 percentage point for the following two years. Then, Boeing will contribute between 3-5 percent of a worker's income each pay period, depending on their age, as the company explained in a fact sheet. The company will also match employee contributions up to 6 percent of base pay.
- The announcement means that a "vast majority" of Boeing employees will have now been moved to a 401(k) plan, said spokesman John Dern.
Further Delays of SHOP Options
for Small Businesses Likely
The administration is raising the possibility that small-business workers in some states might not be given a choice of health plans under the Small Business Health Options Program (SHOP)—potentially undermining a significant aspect of the law that federal health officials already have delayed once, reports the Washington Post.
Under the Affordable Care Act, states are required to offer a SHOP health care exchange where small businesses can enroll in and pay for insurance plans online. Companies in states that declined to build their own SHOP portals would be able to access a similar network run by the federal government. The administration has now again delayed the requirement that states using the federal exchange offer employees a choice of more than one plan option, pushing the deadline back another year to fall of 2015.
(For background on this topic, see the SHRM Online article "‘SHOP’ Small Business Exchange Pared Back Further.")
FAQs on Out-of-Pocket Maximums and
Preventive Services Requirements
Federal agencies recently published new frequently asked questions (FAQs) that address the Affordable Care Act's requirements for out-of-pocket maximums and preventive services, reports Sibson Consulting's Capital Checkup.
The answers clarify, among other points, that for nongrandfathered plans:
- Out-of-network expenses are not required to be counted toward the in-network out-of-pocket maximum.
- Cost sharing includes deductibles, co-payments or similar charges. Cost sharing does not include premiums, balance billing amounts for non-network providers, or spending for non-covered items or services.
- Plans must cover breast cancer risk-reducing medications, such as tamoxifen or raloxifene, for women without cost sharing subject to reasonable medical management.
Obama's 2015 Budget Would Cap Retirement Savings Breaks
for High Earners
"President Barack Obama’s $3.901 trillion budget would raise taxes on the rich, expand tax credits for the poor and middle class — though as of now, it merely serves as a White House wish list," reports Politico. "Although very little of it is expected to become law — or even be seriously considered via legislation on Capitol Hill — the president’s budget still serves as a benchmark for congressional Democrats."
Fully half of the budgets new $56 billion suite of programs would be funded by cutting tax breaks on retirement accounts for the wealthy. High earners would lose their tax break on annual income greater than $200,000.
- “Tax-preferred savings accounts were intended to help middle class families save for retirement,” the budget reads. “However, under current rules, some wealthy individuals are able to accumulate millions of dollars in these accounts, substantially more than is needed to ensure a secure retirement.”
Advisers Warn Against 401(k) Loans
Investors are racking up billions of dollars in defaults on loans taken from their 401(k) plans, ignoring warnings from financial advisers they're incurring needless tax hits and endangering their retirement nest eggs, reports the Wall Street Journal.
In U.S. 401(k)s and related accounts, one out of every four plan participants has borrowed against his or her principal, according to consultancy Aon Hewitt. Meanwhile, an estimated $6 billion a year in loans wind up in default, finds a new study published by the Wharton School of the University of Pennsylvania.
- A 401(k) loan default usually occurs after the investor leaves his or her job and fails to repay the loan in full—normally within 30 to 90 days, according to advisers. Investors who default in most cases have to pay federal and state income taxes. Those under age 59-1/2 who default also are likely to be hit with a 10 percent early-withdrawal penalty.
(To learn more, see the SHRM Online article "Explaining 401(k) Plan Loans’ Upsides and Downsides.")
Health Law's Co-ops Have Mixed Record
The co-ops, a late addition to the Affordable Care Act, are being heatedly debated in Washington, where congressional Republicans recently warned that many of the co-ops could fail, putting at risk the nearly $2 billion in government loans that helped create them, reports the New York Times.
Established insurers privately question whether some co-ops that priced their plans too low could end up struggling if they end up with unexpectedly high medical costs.
- As start-ups, the co-ops were among the hardest hit by the technical failures that marred the law’s rollout.
Parsing the Affordable Care Act’s Labor Taxes
and Work Disincentives
The U.S. labor market will be receiving three blows from the new health care law: the implicit employment tax, the employer penalty and an implicit income tax, according to an analysis at the New York Times Economix Blog.
The law acts as an implicit income tax on employment because most workers could not get federal government subsidies to pay their health care premiums during the months they were at work. The household that is employed more months of the year is likely to get less assistance (and maybe no assistance) under the law.
- This new implicit employment tax will apply to tens of millions of workers who are offered health insurance on their job and to millions of non-employed persons who are considering a position that offers coverage. Relatedly, CNNMoney reports how the Affordable Care Act is giving workers more options to cut back their hours or quit their jobs to pursue other goals.
New Rules Will Increase Small Business Health Costs
Nearly two-thirds of U.S. small businesses that currently offer health insurance to their workers will pay more for coverage as a result of new rules in the health care law, as will millions of small-business employees and their family members, according to new estimates released by the Obama administration, reports the Washington Post.
The Centers for Medicare and Medicaid Services said new rules requiring insurers to offer guaranteed coverage and renewal options to small employers will likely drive up the price of insurance for an estimated 65 percent of small firms, while the remaining 35 percent with exceptionally sick or at-risk workers are anticipated to have rate reductions.
- Ninety-six percent of small businesses say their premiums have increased in the past five years, with the average monthly insurance cost soaring from $590 per employee in 2009 to $1,121 in 2014, according to poll released earlier this month by the National Small Business Administration.
Health Care Law’s Small-Business Marketplace Not Attracting Many Small Businesses
Small businesses in many states have been left with access to an online portal for coverage through the Affordable Care Act's Small Business Health Options Program (SHOP) that is only partially functional — if they have any access at all, reports the Washington Post.
In Maryland, small-business enrollment has not started. Oregon has not yet launched an employer exchange, either, and Minnesota’s small-business site has reportedly been riddled with glitches. During the first few months in Kentucky, which has been lauded as a success in terms of overall enrollment, only 14 companies signed up on the small-business marketplace. And in California, officials earlier this month pulled down the state’s small-business exchange website, admitting that it “was not meeting the needs of agents or small employers and needed improvements.”
- Online enrollment on the federal exchange—which is available in states where governors declined to set up their own exchanges—has been repeatedly delayed, too, most recently until November.
(For background on this topic, see the SHRM Online article "'SHOP' Small Business Exchange Pared Back Further.")
Assistance for Laid-Off Workers Gets Downsized
As unemployment remains stubbornly high, one of the main tools companies use to help some laid-off workers—outplacement assistance for finding new jobs—is shrinking, reports the Wall Street Journal.
Where companies once paid outside firms for months of face-to-face coaching, job leads, office space and workshops, laid-off workers today get less help. Outplacement firms say their revenues are being squeezed as contract values with employers fall and cover fewer services, and a host of online upstarts—which offer web-only career assistance for a fraction of the cost of traditional packages—force providers to compete at lower price points.
- Interviews with about two dozen individuals who have recently gone through outplacement indicate that the services can be useful. And for employers, outplacement helps maintain goodwill and head off potential lawsuits from former employees.
Most 401(k) Matches Not Changing
Only eight out of every 100 large U.S. companies wait until the end of the year to make contributions, according to AON-Hewitt, and that level hasn’t changed in two years, reports the Associated Press. Most companies that use an annual, lump-sum match are banks, where the bulk of an employee’s salary often comes from a year-end bonus.
“The reality is that the 401(k) is not being accessed for 20, 30, 40 years, so an annual match would smooth out over that course of time,” says Bruce Elliott, manager of compensation and benefits for SHRM. “It’s the employees leaving the organization that are taking a hit, and it especially hurts employees who are laid off.”
- Because so many employers now use a 401(k), any cutback is going to face resistance, experts say.
Misclassifying Workers Could Trigger ACA Penalties
Small employers, those with 50 full-time employees or less, aren’t subject to the Affordable Care Act (ACA) employer mandate. The definition of "employee" doesn't include independent contractors, provided that your independent contractor classification holds up, reports Forbes.
- The IRS Inspector General issued a report claiming that millions of workers are misclassified as independent contractors when they are really employees who should be subject to payroll tax withholding and who should be counted when determining with the ACA's employee threshold has been reached.
Are More Companies Squeezing Their 401(k) Plans?
Employers are squeezing their workers’ retirement savings, holding back on both the amount and the timing of 401(k) matching funds and dragging out vesting schedules. Taken together, these measures are making it more difficult to save for old age, reports Bloomberg, which says the most frugal have been scaling back company matches and setting lower limits for the maximum annual payment they’ll make to a 401(k) account.
On the other hand, Pensions & Investments reports that more 401(k) plans are raising employees automatic default savings rates above the traditional 3-percent-of-salary figure.
- Among its clients, Fidelity Investments, said the 3-percent-deferral group accounted for 58 percent of plans offering auto enrollment last year and the more-than-3-percent group represented 27 percent. By comparison, at the end of 2008, those figures were 62 percent and 21 percent, respectively.
AOL's CEO's 'Distressed Babies' Comment Raises
Health Privacy and Insurance Issues
AOL Chief Executive Tim Armstrong created a firestorm when he singled out two employees and their "distressed babies" for driving up benefit costs for the company. How did the boss know about personal medical conditions of his employees and their families?, asks CNNMoney.com.
Employers, especially at large, self-insured companies, often know about high-cost medical treatments that their workers and dependents are undergoing, the article states. Benefits administrators will send employers reports about claims their workers incur, particularly outsized ones. But these should use aggregate data and not include any identifying information about the employee in order to avoid violating HIPAA provisions.
- A separate report by Fortune (via CNNMoney.com) notes that the problem with self-insurance, as the name implies, is that the company is on the hook for its employees' medical bills up to a cap, above which many self-insured companies purchase stop-loss insurance to cover. Armstrong's comments imply that AOL's stop-loss insurance was insufficient for a firm of its size, not kicking in until an individual incurred expenses over $1 million, a health care consultant contended.
Large Employers Also Benefit from ACA Tweak
Big retail stores, hotels, restaurants and other companies with lots of low-wage and part-time workers are among the main beneficiaries of the Obama administration's latest tweak to health care rules, reports the Associated Press (via the St. Louis Post-Dispatch).
Companies with 100 or more full-time workers will be able to avoid the biggest of two potential employer penalties in the Affordable Care Act (ACA) by offering coverage to 70 percent of their full-timers.
Mark Holloway, a benefits expert with the Lockton consulting company, says that will help some companies avoid what he calls the law's "nuclear penalty," a $2,000-per-employee fine levied across a company's entire workforce, after adjustments.
For Midsize Firms, Employer Mandate Delayed Until 2016
The Obama administration is relaxing the employer mandate under the Affordable Care Act--in a big way for medium-sized businesses, and a smaller way for the largest employers, reports the Washington Post.
According to the Treasury department's new final rule and related questions and answers on Employer Shared Responsibility Under the Affordable Care Act:
- For employers with the equivalent of 50 to 99 full-time employees, the employer mandate does not take effect until 2016.
- For employers with 100 or more full-time equivalent workers, offering coverage to 70 percent of their full-time employees will be counted as fulfilling the employer mandate in 2015. This is a transitional measure and, by 2016, large employers will need to hit the original, 95 percent target.
Other, smaller tweaks in the new Treasury rule deal with how employers are to count how many hours employees work (for seasonal workers, for example, or teachers.)
AOL Reverses Year-End 401(k) Match Policy
After being lambasted by employees and the media, AOL Inc. Chief Executive Tim Armstrong said on Feb. 8, 2014, the company would rescind a controversial change to its 401(k) plan and apologized for remarks used to explain the initial policy shift, the Wall Street Journal reported.
The company, following the lead of IBM and others, had recently announced it would give employees a lump-sum contribution to their 401(k) retirement accounts at year-end, rather than matching contributions each pay period. The year-end disbursement was available only to employees active on Dec. 31 and meant that those who left before then wouldn't get a matching contribution, the Journal reported.
Armstrong caused an uproar among employees and social media by saying that care for two staffers' "distressed babies" in 2012 had cost the company about $1 million each, and that higher heatlh care costs required the company to cut benefits elsewhere.
- On Feb. 9, the mother of one of the babies Armstrong referred to posted an article on the website Slate taking issue with "how (Armstrong) exposed the most searing experience of our lives...for no other purpose than an absurd justification for corporate cost-cutting."
Laws on Paid Sick Leave Divide Businesses
Many cities and states across the country have been adopting strict new mandates outlining paid sick days. In recent years, New York City, San Francisco, Jersey City, Portland, Ore. and Washington, D.C., have enacted measures, reports the Wall Street Journal.
The laws generally require businesses with at least five employees to provide a number of paid sick days, based on the total hours worked, up to a specified maximum, typically five to seven days a year. Proponents of such laws say low-wage workers are the least able to afford an unpaid day off, and sick workers can infect others. Critics say the laws unnecessarily raise costs for small employers and blunt job growth.
- Jersey City's law went into effect Jan. 24, requiring employers with 10 or more workers to provide up to five paid sick days a year. "The standard in the work environment for a part-time role is that you're paid only for the hours you work," says Karen Davis-Farage, president of Pole Position Raceway, whose hourly workers are mostly students. The cost of paying absent workers, plus their replacements, to greet customers and organize races could hurt the bottom line of her three-year-old Jersey City franchise company, she says, adding, "Now we're going to need to track information we didn't track before."
Exchange-Traded Funds Can Drop 401(k) Costs
By offering low-cost exchange-traded funds (ETFs) instead of actively managed mutual funds, some 401(k) plans could lower their expenses significantly, reports the Washington Post. ETFs are index-tracking funds with extremely low expense ratios that are cheaper than index-based mutual funds, and much cheaper than actively managed mutual funds.
Demand is so strong for the lower costs of index funds that it’s pushing the industry to alter its offerings. The latest shift: 401(k) plans built entirely around ETFs, rather than traditional mutual funds.
- Charles Schwab launched an all-ETF 401(k) offering and says it expects several employers to begin offering the program to their workers later this year.
ACA May Prompt People to Work Less
Many workers may opt to work less to retain their eligibility for Medicaid or federal subsidies under the Affordable Care Act (ACA), according to the nonpartisan Congressional Budget Office (CBO), reports CNNMoney.com.
The ACA could reduce the labor force by the equivalent of 2.5 million workers in 2024, according to the report.
- The Obama administration pointed to the CBO finding that Americans' new ability to get health insurance not tied to their jobs will give them more freedom and flexibility, thanks to federal subsidies for those in lower income brackets.
Coercive Wellness Programs Can Backfire
Wellness programs "that coerce, intimidate, threaten, cajole, bribe, or otherwise undermine individual choices related to health improvement are viewed by workers as self-serving and not in the employees’ self-interest," writes Ron Z. Goetzel, director of the Emory University's Institute for Health and Productivity Studies and VP for Truven Health Analytics, on the Health Affairs Blog.
- "Poorly designed programs do not work. In fact, they often backfire because employees become resentful of management’s underhanded methods of compelling individuals to do what they would not otherwise do on their own accord," Goetzel observes.
Unions Upset Over Lack of Exemptions from ACA
"Labor leaders who have spent months lobbying unsuccessfully for special protections under the Affordable Care Act warned this week that the White House’s continued refusal to help is dampening union support for Democratic candidates in this year’s midterm elections," reports the Washington Post. "Their complaints reflect a broad sense of disappointment among many labor leaders, who say the Affordable Care Act has subjected union health plans to new taxes and mandates."
Suprisingly, this story does not report that union plans have been granted exemption from at least one major ACA expense, the transitional reinsurance fee, as SHRM Online reported.
Older Workers May Still Need Life Insurance
Older workers should re-evaluate whether they have enough life insurance while they are employed and plug any gaps in their risk-management plan, experts advise, reports USA Today.
If seniors are planning to continue working because they need the income, and not just to stay active, then they should be protecting against the possible loss of that income during this time period.
- Under the Age Discrimination in Employment Act of 1967 your employer-provided life insurance death benefit after reaching age 65 can be reduced and often is. Experts says that reduction must be based on the estimated increased cost to provide the coverage for older workers.
Common Flaws in Corporate Wellness Programs
Instead of supporting employees already undertaking their own self-improvement plans and encouraging others to start them, wellness has morphed in many directions that increasingly overlook or even conflict with that original goal. But human resources departments can reconfigure their offerings so they are embraced, not resented, according to an opinion piece posted on the Harvard Business Review Blog Network.
Among common flaws, many programs have become an employee control tool heavy on financial forfeitures while light on and actual health improvement or cost containment. Meanwhile, the emphasis has moved away from science towards a "round-up-twice-the-usual-number-of-suspects" emphasis on participation.
- Executives running or paying for these programs should ask, "Are you doing wellness to your employees or for your employees?"
More ACA Regs Coming for Employer-Provided Health Plans
Four years after the Affordable Care Act (ACA) was signed into law, large businesses haven’t seen final rules for the employer mandate and insurers are waiting for more details on the benefits they’ll have to offer in the future, reports Politico.
- Final rules for the employer mandate, now scheduled to take effect in 2015, are being hammered out. Businesses with at least 50 full-time equivalent employees will face fines if they don’t offer health coverage meeting minimum standards to full-time workers and if employees then get subsidies on health insurance exchanges.
- The administration is also now weighing whether and how to exempt some groups from the ACA's transitional reinsurance fee intended to support a $20 billion reinsurance program. The program is meant to provide financial protection to insurers if too many sick patients sign up for coverage right away.
- HHS will soon reconsider rules on essential health benefits, which dictate what health plans in the small group and individual markets must cover. The rules originally gave states and insurers more leeway to design benefit packages in 2014 and 2015, but consumer advocates pushed for a more prescriptive approach.
Wage Hike for Federal Contract Workers Limited
President Obama's plan to raise the minimum wage for federally contracted workers is winning praise from unions and labor activists, but it could take a year or more before any hikes take place and the impact may not be as widespread as some advocates had hoped, reports the Associated Press.
- The increase is only expected to cover about 10 percent of the 2.2 million federal contract workers overall, since most of those employees already make more than $10.10. It won't take effect until 2015 at the earliest and doesn't affect existing federal contracts, only new ones.
President Proposes 'MyRAs' for Workers Lacking 401(k)
The “MyRA” plans, similar to individual retirement accounts, will provide “a new way for working Americans to start their own retirement savings,” President Obama said during his State of the Union address, reports Bloomberg News.
Under the proposal, workers could have part of their pay deducted for deposit into an account invested in U.S. government bonds that would be treated for tax purposes as a Roth individual retirement account. The accounts would be open to people with annual household income up to $191,000 whose employers choose to participate, according to a White House fact sheet.
- Participation would be voluntary and principal contributions will be guaranteed under the plan. Initial investments could be as low as $25 and payroll contributions as low as $5. The plans would be set up through the Treasury Department.
Supreme Court: “Changing Clothes” Not Compensable Under Plant Workers’ Union Contract
On Jan. 27, in a very limited ruling, the U.S. Supreme Court held that an employer was not required to pay union employees for the time it takes them to put on and take off protective gear when their collective bargaining agreement did not provide for compensation for that time, according to a blog post by law firm Ogletree Deakins.
For nonunion employers the ruling, Sandifer v. United States Steel Corp., does not change the donning and doffing rules under the Fair Labor Standards Act (FLSA).
- According to Danuta B. Panich, a shareholder in the Indianapolis office of Ogletree Deakins, “Unfortunately, Sandifer offers little solace for nonunion employers and those unionized employers that have not negotiated an exclusion of washing and clothes-changing from compensable time. The Supreme Court assumed that putting on protective clothing required for the job is compensable time except when carved out by [FLSA] section 203(o). Moreover, the Supreme Court rejected the notion that any of the time spent on activities of this nature can be disregarded because it is ‘de minimis.’”
Will 2014 Be the Year of the Raise?
With the unemployment rate set to fall nearer to pre-recession levels by year's end, 2014 could be the Year of the Raise—at least for some people. For millions of workers, it’s about time: Real median family income has fallen 6.4 percent to $52,163 since peaking in 2007, reports USA Today.
Surveys by compensation consultants Aon Hewitt and Buck Consultants say corporations plan to keep 2014 raises around 3 percent, not adjusted for inflation, similar to 2013.
- "Most estimates of the unemployment rate below which real wage growth accelerates are around 5.5 percent," Moody's Analytics chief economist Mark Zandi said. "This suggests wage growth won't accelerate in earnest until 2016."
(For more on this topic, see the SHRM Online article "2014 Salary-Increase Budgets Stable.")
Monetary Incentives, Consistent Messages,
Encourage Wellness Participation
Johnson & Johnson pares $500 off the annual premium for employees who submit health information, which is then used to create an individual health risk profile and recommend activities for the employee, such as a diabetes management program. The company also wants to make sure employees act on their health information, so it offers an additional $100 to $250 for participation in a recommended activity, reports the U.S. Chamber of Commerce.
- Mixed messages can have an impact on wellness program participation. For example, a company can spend a lot of time talking about healthy behavior, but the effect will be blunted if leadership shows no interest in the initiatives or if vending machines are still full of junk food.
(To learn more, see the SHRM Online article "Why Employees Participate—or Don't—in Wellness Programs.")
Overworked Knowledge Workers Need a Break
One reason knowledge workers are expected to work longer hours is that work has gotten more specialized, so the penalty for handing off work to multiple people has risen, says columnist Megan McArdle at Bloomberg.com. She writes:
Every time I come back from vacation, I dive back into work with new ideas and a lot more energy, and I think, “Why don’t I do this more often?” And still, every year, I lose most of my vacation days. Maybe U.S. employers should [require] you to take all your vacation -- not “use it or lose it,” just “use it.” But you can see why they aren’t, when most of the economic and cultural pressures run the other way.
DOL to Look at Brokerage Windows in 401(k) Plans
The Department of Labor (DOL) is scheduled to release a request for comment in April on so-called brokerage windows in 401(k) plans. The mechanisms provide a way for workers to select investment vehicles that are not offered in the plan, reports Investment News, which said the focus on brokerage windows reflects the DOL's concern that plan participants are on their own if they opt to use the mechanism.
In 2012, the DOL addressed concerns about brokerage windows in two Field Assistance Bulletins. But the answers to the frequently-asked-questions posed in the documents generated more questions in the financial industry.
- “This is potentially the beginning of a regulatory effort on brokerage windows that could be very broad and significant,” Bradford Campbell, counsel at Drinker Biddle & Reath and a former DOL assistant secretary for the Employee Benefits Security Administration, told Investment News. “It is one of the surprises on the regulatory agenda. They're sticking their toe in the water.”
(For background on this issue, see the SHRM Online article "401(k) Plan Brokerage Windows Get a Reprieve.")
Target to Drop Health Insurance for Part-Time Workers
Target Corp. said it will end health insurance for part-time employees, joining Trader Joe’s Co., Home Depot Inc. and other retailers that have scaled back benefits in response to changes from the Affordable Care Act, reports Bloomberg News.
- About 10 percent of Target’s part-time employees, defined as those working fewer than 30 hours a week, use the company’s health plans now, according to an announcement posted on the Minneapolis-based company’s website. Target said it would pay $500 to part-timers losing coverage and a consulting firm will help workers sign up for new public-exchange plans.
ACA Nondiscrimination Rules Remain Elusive
The Obama administration is delaying enforcement of another provision of the new health care law, one that prohibits employers from providing better health benefits to top executives than to other employees. Tax officials said they would not enforce the provision this year because they had yet to issue regulations for employers to follow, reports CNBC.com.
A blog posted by Fox Rothchild LLP notes further:
One of the key questions facing the IRS is how to apply the non-discrimination rules if an employer offers the same coverage to all employees but large numbers of low-paid workers turn down the offer and instead obtain coverage from other sources, like a health insurance exchange. In other words, the employer does not intend to discriminate, but ends up with only a few highly compensated employees electing the plan. Plus, there is a question about whether to revise the existing non-discrimination rules for self-funded plans that have been in effect for years. In short, the same questions that existed in 2010 when the Act was passed exist today, and until regulations are written, enforcement remains impossible.
(For background on this issue, see the SHRM Online article "Nondiscrimination Rules for Health Plans Loom Ahead.")
Bare-Bones Health Plans Survive Through Quirk in Law
The health-care overhaul was supposed to eliminate insurance plans that offer skimpy coverage at cut rates. But a quirk in the law stands to help some companies keep them going for years to come, reports the Wall Street Journal.
As long as companies offer at least one plan that complies with the law's requirements, they are free to keep offering ones that don't. However, employees who pick the cheaper plan could have to pay the individual penalty—though that could still cost them less than signing up for the more expensive plan.
- Such plans, which might cost an employee just $80 a month in premiums, generally pay a set amount for specific medical services—$70 for a doctor's visit, for example, or $20 for a prescription—without regard to the underlying cost. They limit the amount of payments or care available in a year, and can exclude entire areas of coverage.
Experts: Supreme Court Likely to Affirm
Severance Pay Is Subject to FICA
The U.S. Supreme Court heard oral argument was heard in United States v. Quality Stores, Inc. on whether so-called “supplemental unemployment benefits” (SUB payments) qualify as “wages” for purposes of the Federal Insurance Contributions Act (FICA), and the government appeared likely to prevail in reversing a Sixth Circuit decision, reports SCOUTSBlog.
- At the end of the day, the justices seemed quite comfortable with the government’s reading of the FICA statute as applying to severance payments, finding that SUB payments like those made by Quality Stores are wages under FICA because they plainly constitute “remuneration for employment.”
Target-Date Fund Fees Provoke Switching
Lori Lucas, Callan’s defined contribution practice leader, told PlanSponsor.com she was surprised by how much activity is happening in defined contribution plans around target-date funds (TDFs). More than one-third of respondents in Callan's 2014 Defined Conribution Trends Survey said they were planning to change target-date funds or managers.
As PlanSponsor reported, Lucas noted that the survey found an increase in the use of indexed funds within TDFs, with actively managed funds making up less than 30 percent of TDFs used by plan sponsors now. Lucas said this was primarily driven by fees.
- Callan's survey similarly found an increase in the use of indexed funds within plans’ core investment lineups. The percentage of plan sponsors that offer an active/passive mirror (i.e., where major asset classes are represented by both active and passive funds) jumped from 12 percent in 2012 to 21 percent in 2013. In 2014, 24 percent of plan sponsors aim to increase the proportion of passive funds in their defined contribution plan lineup, PlanSponsor reported.
Minimum Wage Hike Could Mean a Raise for All
When New Jersey increased its minimum wage this year, Dolores Riley gave raises to all 16 employees at her childcare center. But it wasn't because they were all making $7.25 an hour. In fact, only five staff members at Gramma’s School House were affected when New Jersey upped its minimum wage to $8.25, reports CNNMoney.
Riley is not alone. When there's a minimum wage increase, some small business owners will raise the pay for most, if not all, hourly workers in order to preserve their wage structure and retain quality employees. That's what economists call a ripple effect, meaning an increase in the minimum wage spills over to higher wage brackets.
- As the year began, 13 states raised their minimum wage (by varying degrees), and on July 1, California will increase its by $1 an hour. Congressional Democrats and President Obama are pushing to raise the federal minimum wage from $7.25 an hour to $10.10 by 2015.
Second Wave of Health-Insurance Disruption
Affects Small Businesses
According to industry analysts, insurers and state regulators, millions of people who receive insurance through small employers could be affected when their employer plans receive cancellation notices in October 2014, reports the Washington Post.
Some of the small-business cancellations are occurring because the policies don’t meet the law’s basic coverage requirements. But many are related only indirectly to the law; insurers are trying to move customers to new plans designed to offset the financial and administrative risks associated with the health-care overhaul. As part of that, they are consolidating their plan offerings to maximize profits and streamline how they manage them.
- Now that insurers aren’t able to charge more to people with preexisting conditions, companies with sicker workers may see lower premiums, while those with a healthier workforce may see higher premiums. Many small businesses are also discovering that the new plans have more restrictions on access to specific doctors, hospitals and prescription drugs.
Understanding New Rules That Widen Mental Health Coverage
Final rules to fully carry the Mental Health Parity and Addiction Equity Act of 2008 were issued in November, after a long delay. While many plans are already complying with certain aspects of mental health parity, the final rules fill in gaps about how the law must be applied, reports the New York Times.
The parity law says that when health insurance plans provide coverage for mental ailments, it must be comparable to coverage for physical ailments. For instance, plans cannot set higher deductibles or charge higher co-payments for mental health visits than for medical visits, and cannot set more restrictive limits on the number of visits allowed.
- Plans also cannot limit mental health care to a specific geographic region, if they do not do so for physical illnesses. And the rules clarify that the law also applies to 'intermediate' treatment options for mental health and addiction disorders, like residential treatment or intensive outpatient therapy.
(To learn more, see the SHRM Online article "Final Mental Health Parity Rules Issued.")
Send Sick Workers to Exchanges?
Can employers pay chronically ill workers to leave the company health plan and get insurance through a public exchange, while keeping healthier employees on their own plans? That’s a question some business owners are asking, now that no one can be turned away from individual health plans under Obamacare, reports Bloomberg Businessweek.
While ERISA bars employers from discriminating in how they offer workers benefits, it doesn’t address a situation in which an employee and an employer come to an agreement that the worker voluntarily decline coverage in favor of a better deal on the exchanges, subsidized with a cash benefit from the employer.
- However, such a practice may be illegal, and it might leave business owners open to employment discrimination claims, said John L. Barlament, an attorney at Quarles & Brady in Milwaukee. Nevertheless, he said he has had “multiple conversations” with business owners and insurance brokers interested in pursuing this option.
EAPs Underused; Poor Communications Cited
Employee assistance programs (EAPs) can effectively reduce the adverse effects of depression, workplace stress and other mental health issues, but a new study shows just 3 percent of employees use their employer's EAP, reports Business Insurance (registration required).
A frequent barrier to broader use of EAP counseling services is employees' distrust or lack of awareness of privacy policies.
- A sidebar advises employers to change the conversation around using EAPs in order to remove the stigma that might come with it. Advertising an EAP's less intrusive services—including financial planning and family-oriented concierge services—can draw employees into the program without fear of incurring negative attention from their co-workers or managers.
Small Businesses Without Exchange Access
Lose Tax Credits
During the past three years, the Affordable Care Act's small business tax credits have been available to firms with no more than 25 workers that offered health care to their workers, and the subsidy was worth up to 35 percent of the cost of coverage. Starting in January 2014, it expands to cover as much as 50 percent, as long as it is applied to plans purchased on the new state-run marketplaces or the federal exchange, reports the Washington Post.
In Maryland, small business owners are still waiting for health officials to open the state’s new employer exchange. Until then, Maryland employers are left with the same private insurance market they have been using for decades, and they cannot yet purchase plans that qualify for the credits. It is the same story in Idaho, Oregon and Mississippi. None of those states have launched a functioning small business exchange, and because each is building its own site, it is unclear whether employers will be able to access the full federal tax credit next year.
- Meanwhile, even in states where small-business plans are currently available through the new federal marketplace, some employers are not pleased they must switch to plans sold through the exchange in order to qualify for tax credits they have been using since 2010.
(To learn more, see the SHRM Online article "‘SHOP’ Small Business Exchange Pared Back Further.")
Percentage of Revenue to Spend on Pay
Businesses should plan to devote 15 to 30 percent of their gross revenue to payroll; according to consultants, businesses within this range tend to be the most successful. However, it is sometimes necessary to make adjustments, and businesses in the service industry may spend up to 50 percent of their revenue on payroll, reports the Bellevue Business Journal.
- Once you have successfully indexed your payroll costs to your revenue, you need to make a plan for adjustments.
Health Care Law Hits Midsize Businesses Hardest
The new year will bring tough new health care decisions for many businesses, especially those too small to easily absorb new costs and too big to think about dropping coverage, reports USA Today. Midsize businesses, particularly those with 50 to 200 workers, are having the toughest time affording escalating health care costs.
Starting in 2014, businesses that are fully insured -- as opposed to self-insured -- will be hit with an $8 billion tax that is estimated to add 2-3 percent to premiums for each covered employee. This tax is expected to increase every year for the next several years. By 2018, It's expected to be about 4 percent. A so-called reinsurance fee of $63 for every person covered by a plan also kicks in for the new year.
- These additional costs have prompted employers to add restrictions such as dropping coverage for working spouses who can get benefits at their own companies.
Tax Benefits for Mass Transit Commuters Set to Drop
Starting Jan. 1, the monthly amount that commuters can set aside before taxes to spend on mass transit is to drop from $245 to $130, which for some heavy users could mean several hundred in higher costs next year, reports the Washington Post.
The change pits mass transit users against drivers, who by contrast will see an increase in their monthly parking benefit in the new year, from $245 to $250.
- “This is the biggest disparity between the two components of the commuter benefit that we have ever seen,” said Natasha Rankin, executive director of the Employers Council on Flexible Compensation. “For those who rely on mass transit, where you also have increasing costs, this is a double hit.”
Retirement Plan Guidance on EBSA's List for 2014
The Department of Labor's Empolyee Benefit Security Administration (EBSA) recently released an update to its guidance agenda, including a number of priorities that can be expected to affect retirement plans. "Clearly there are some surprises in this updated priorities document and perhaps some reason for concern as well," notes Todd Berghuis, senior vice president for ERISA compliance at Acensus, on the firm's blog.
The most anxiously awaited EBSA guidance are the regulations defining when an advisor, service provider, or other person may be considered a fiduciary in their dealings with a plan or retirement account. Another item on the guidance plan is “standards for brokerage windows” in individual account type plans, such as 401(k) plans. “The FAB’s reference to 'amendments of relevant regulatory provisions' sounds ominously like we could see a reopening of what most thought was a closed chapter in the fee disclosure drama,” Berghuis writes. “'Brokerage Windows II' is a sequel we might not want to see.”
- EBSA will also revisit the current regulations that plans must follow when selecting a safe annuity for plan participants or beneficiaries at payout time. “A reasonable safe harbor, one that does not require a plan administrator to be both a psychic and a Harvard economist when selecting a safe annuity, has been sorely needed. Existing regulations are next to impossible to confidently meet,” Berghuis notes.
Why Health Insurance May Soon Resemble 401(k)s
A shift in workplace health insurance is akin to the dramatic shift in recent decades from traditional pensions to 401(k)s. Health insurance will move in the same direction in the next five years, according to experts at the annual policy forum sponsored by the Employee Benefit Research Institute (EBRI), reports Reuters.
While the experts agreed that defined-contribution health insurance systems are coming, many speakers conceded that the defined-contribution retirement system produces worrisome mixed outcomes when it comes to retirement security. A key problem, they said, is that many employees have a hard time managing 401(k)s.
- Larry Zimpleman, chief executive offer of Principal Financial Group, said rising health care costs will push half of employers to adopt defined-contribution health insurance plans within three to five years. Under that scenario, employees would receive a specific amount that can be used to shop in a private health insurance exchange with pre-selected insurance choices and wrap-around assistance services to help workers pick plans.
(To learn more, see the SHRM Online article Time for Defined Contribution Health Benefits?)
IRS Answers Outstanding Questions for Same-Sex Spouses
In Notice 2014-1, issued on Dec. 16, 2013, the IRS clarifies certain questions regarding the way in which the rules governing cafeteria plans, flexible spending accounts (FSAs) and health spending accounts (HSAs) should be applied in situations involving same sex spouses, according to an alert by law firm FordHarrison.
Even though no action was taken by the employee, the repeal of the Defense of Marriage Act (DOMA) by the Windsor decision changed the employee's legal marital status under federal law, and on that basis, the Notice provides that a mid-year election change could be made at any time during the plan year that includes either July 26, 2013 (i.e., the date of the Windsor decision) or Dec. 16, 2013 (i.e., the date of the Notice).
The Notice permits reimbursement from FSAs of expenses incurred by an employee's same sex spouse (or the spouse's dependents) on or after the later of (i) the date of marriage, or (ii) the beginning of the FSA plan year that includes the date of the Windsor decision (July 26, 2013), regardless of whether the employee had elected coverage that included the spouse during that period of time. The contribution limit for HSAs—$6,450 in 2013—applies to the total contributions made by the couple to one or more such accounts.
In December 2013, the IRS also updated its FAQs for Individuals of the Same Sex Who Are Married Under State Law
with new questions and answers that further clarify how employers administer their plans, including reimbursing an employee for an overpayment of Social Security and Medicare taxes and income tax withholding with respect to same-sex spouse benefits.
(To learn more, see the SHRM Online article IRS Recognizes All Same-Sex Marriages for Pretax Benefits.)
MasterCard Sets New Standards for Payroll Cards
MasterCard has set new standards for its payroll cards, reports the AP via BND.com. Critics have charged that fees to use the cards are a burden on low-wage workers. The Consumer Financial Protection Bureau issued a warning to employers about such cards in September based on complaints about fees.
Payroll cardholders can access their full pay for free at least once per pay period under the new standards and employees will have a choice of how they are paid — by card, direct deposit or other means — as required by law.
- All new MasterCard payroll card programs will need to meet these standards as of July 1 and existing programs will have until Oct. 1, 2014 to make any necessary adjustments.
(To learn more about this topic, see the SHRM Online article "Keeping Pay Cards Viable in the Face of Legal Challenges.")
Employers Move to Cover Costly Autism Therapies
Many employers with self-funded plans are moving forward to add comprehensive autism coverage that includes intensive therapies such as applied behavioral analysis (ABA), reports Reuters. Thirty-four states and the District of Columbia now require insurance carriers to extend coverage for ABA and other autism treatments in some or all of their individual and small-group policies.
Several of the country's major technology companies, including Microsoft Corp and Intel Corp, led the way more than a decade ago. The past two years have seen other employers catching up.
- The lifetime costs of treating one person with autism could top $2.3 million, according to 2012 research.
Supreme Court Permits Contractually-Based Statute of Limitations in ERISA Denial of Benefit Cases
The U.S. Supreme Court issued its decision in Heimeshoff v. Hartford Life & Accidental Life Ins. Co., concerning statute of limitation accrual issues for benefit claims under ERISA, reports the Workplace Prof Blog.
The court unanimously held that Hartford's long-term disability plan's requirement that any suit to recover benefits be filed within three years after “proof of loss” is due is enforceable.
- More specifically, "[a]bsent a controlling statute to the contrary, a participant and a plan may agree by contract to a particular limitations period, even one that starts to run before the cause of action accrues, as long as the period is reasonable."
Supreme Court Declines to Review
Lockheed Employee Class Action
"The U.S. Supreme Court opted not to hear an appeal filed by Lockheed Martin Corp., which wanted the court to throw out a class action lawsuit claiming Lockheed is liable for poor management of its employee retirement plan under ERISA, reports Reuters. The case, originally filed in 2006, will now return to an Illinois federal court for further proceedings.
- Lockheed sought Supreme Court review on a threshold issue of whether any of the named plaintiffs had shown they had been harmed. The company said that at the time of the lawsuit, only one of the named plaintiffs had invested in the fund at issue and that it had been performing well during the time he was participating.
But Supreme Court Accepts 401(k) Employer Stock-Drop Case
The U.S. Supreme Court has agreed to revisit the issue of fiduciary prudence in managing employer stock investment options in defined contribution plans, reports Pensions & Investments and SCOTUSblog.
The Labor Department had petitioned the court to hear a case regarding Fifth Third Bancorp that sought to settle a recent split between judicial circuits on the issue that could make it easier for participants to challenge employers when company stock loses value.
- The high court's ultimate decision could make it harder for plan sponsors to offer company stock as an investment option in defined contribution plans, but it could also resolve inconsistencies regarding the practice that have come from lower court rulings.
Smallest Businesses Drop Health Coverage
in Favor of Public Exchange
America’s smallest employers, those with fewer than 50 workers, are not required under the Affordable Care Act to offer insurance or contribute to their employees’ health care costs. As a result, some companies, seeing that their employees now have options on the Affordable Care Act's public health insurance exchanges, are seizing the opportunity to wash their hands of one of their most expensive business problems, reports the New York Times.
Health insurance has long been a headache for small businesses. Their policies are typically more expensive than comparable plans available to larger employers, and because the risk pool of participants is tiny, one sick employee can increase a group’s premiums sharply.
- Workers on an employer-sponsored plan pay their share of their monthly premium with pretax dollars. Plans bought through the exchanges are paid for with after-tax wages, which can add to employees' costs. But some small business owners say the combination of subsidies and lower deductibles on the public exchange would still reduce overall spending on health care for their employees.
A Mandatory Arbitration Shield for ERISA Class Actions
A series of recent U.S. Supreme Court decisions indicate that ERISA plan sponsors who adopt mandatory arbitration provisions with class action waivers for employee benefit plan disputes may be able to eliminate all future ERISA class actions, according to an analysis by law firm Baker & McKenzie.
- Employers should assess whether the protections afforded by arbitration agreements coupled with class and collective action waivers outweigh the potential disadvantages.
On Health Exchanges, Deductibles Surprisingly High
As consumers dig into the details of healthcare.gov, they are finding that the deductibles and other out-of-pocket costs are often much higher than what is typical in employer-sponsored health plans, reports the New York Times.
For policies offered in the federal exchange, as in many states, the annual deductible often tops $5,000 for an individual and $10,000 for a couple. By contrast, according to the Kaiser Family Foundation, the average deductible in employer-sponsored health plans is $1,135.
- Most people shopping in the exchanges are expected to choose bronze or silver plans, which provide less generous coverage than most employer-sponsored plans.
401(k)s Tweak Fees for Participants
More employers are tweaking the way the administrative costs of their 401(k) plans are passed on to plan participants. The goal is to find ways to even out the burden on employees, reports the Wall Street Journal.
Some employers are refunding revenue-sharing payments to retirement savers who have chosen investments with higher costs—and assessing new fees from savers whose funds charge less. Other employers are switching to a uniform percentage charge for administrative costs across all of their investment choices.
- A third group is totally scrapping the use of fund fees for plan expenses. Instead, they are charging workers a flat dollar amount to cover the plan's costs.
(To learn more, see the SHRM Online article "Revisiting 401(k) Fees in a Post-Disclosure World.")
IRS Finalizes But May Revisit ACA Excise Tax
Self-funded employers with stop-loss coverage can breathe a sigh of relief now that the Internal Revenue Service finalized rules for new health insurance fees, but nonprofit HMOs banking on an exemption will have to pay up, reports Healthcare Payer News.
- The fee will apply to health plans with annual premium revenues of at least $25 million, with exemptions for self-insured companies, government entities, nonprofit plans with at least 80 percent of revenue from government programs and voluntary employees' beneficiary associations not established by employers.