Don't Forget to Amend Your Section 125 Plan
As we all know by now, with the exception of insulin, over the counter medicines and drugs are no longer permissible expenses under FSAs, HRAs, and HSAs unless the purchaser has a prescription for the medication. And, generally, the tax rules require that a plan cannot make a retroactive amendment to one of these plans. So, if you have not amended your plan to comply with the changes that went into effect January 1 of this year, you have until July 1, 2011 to make a plan amendment retroactive back to January 1.
For more guidance see: IRS Notice 2010-59 Section 105 — Amounts Received Under Accident and Health Plans, Section 106 — Contributions by Employers to Accident and Health Plans, Section 125 — Cafeteria Plans, Section 220 — Archer MSAs, Section 223 — Health Savings AccountsPosted By Diane Pfadenhauer In Compensation & Benefits | Permalink
1099 Reporting Requirement and Free Choice Voucher are Gone
In April, 2011, President Obama signed the Comprehensive 1099 Taxpayer Protection Act and the Continuing Appropriations Act. The new laws repeals certain provisions of the Affordable Care Act:
THE FORM 1099 REPORTING REQUIREMENT
Prior to its repeal, the provision would have been effective January 1, 2012, and required employers to issue a Form 1099 to any vendor from whom the employer purchased $600 or more of goods or services in a calendar year. We all know that we already have to issue 1099’s to individuals who receive payments in excess of $600 in a year.
THE FREE CHOICE VOUCHER IS NO MORE
The free choice voucher provision would have been effective January 1, 2014, and required employers to offer certain employees a free choice voucher to opt out of the employer’s health plan and enroll in coverage through an exchange. To be eligible for a voucher, an employee’s premium contributions had to be between 8 percent and 9.8 percent of household income, which could not exceed 400% of the federal poverty level. The voucher would have equaled the employer’s contribution to the plan for which the employer pays the largest portion of the cost of the plan. Employees eligible for vouchers would have been able to use the voucher to obtain health coverage through an exchange and keep any remaining voucher amount as taxable income.
So why do we care? Some of these provisions would have been onerous on employers but would have enabled the federal tax government to collect more taxes in order to offset the cost of health care reform. In addition, the loss of the voucher system could remove a potentially valuable deduction for employers.
For more, follow this link
Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Flexible Spending Account Changes On the Way
Recognizing that changes to Flexible Spending Accounts can have a negative impact on a lot of people, legislators have introduced a measure into the Senate that could repeal provisions in health care reform. This bill could have a direct affect on two changes that we are currently facing with regard to these accounts:
Flexible Spending Account Changes in 2011
In the past, funds in one’s FSA were available for use in the purchase of OTC medications. A current change, that took place in January of this year, eliminates the availability of these funds for over-the-counter medications requiring participants to obtain a prescription in order to use their funds to pay for these medications. The question – how often will we want to go to our doctor to get a prescription for pain reliever, allergy medication, or cold medicine?
Flexible Spending Account Changes in 2013
Another anticipated change to Flexible Spending Accounts is the capping of the amount that one can put into their account. Currently, most plans have no limit to the contribution amounts, although many employers do cap employee contributions at around $5000. Beginning in January 2013, however, contributions to FSAs will be capped at $2500 per year, individually or for a family. Those with large medical bills or those who could use the tax break may be significantly affected by this change.
The bill introduced into the Senate could repeal the provisions of capping contributions as well as remove the provisions of excluding the use of one’s FSA to pay for their over-the-counter medications putting individuals back in charge of their accounts and eliminating the “in-flexibility” of our spending accounts.
Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Nope: Employers are NOT Required to Report the Cost of HC Plans on 2011 W-2
In an interesting twist, the IRS just released a notice alerting employers that they do not have the include the cost of employer sponsored health care coverage on employees' W-2's for the 2011 tax year. Specifically:
"This notice provides interim relief to employers with respect to reporting the cost of coverage under an employer-sponsored group health plan on Form W-2, Wage and Tax Statement, pursuant to § 6051(a)(14) of the Code. Specifically, this notice provides that reporting the cost of such coverage will not be mandatory for Forms W-2 issued for 2011. The Treasury Department and the IRS have determined that this relief is appropriate to provide employers with additional time to make any necessary changes to their payroll systems or procedures in preparation for compliance with the reporting requirement."Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Salary Surveys: That Time of Year... to Get Into Trouble
This is the time of year that HR professionals pick up the pace of conducting salary surveys in their planning process for the new year. What many don't know is that anti-trust issues threaten to bite back at the unsuspecting. I recent;y tweeted about a legal settlement that occurred among major software developers that prohibited them from "agreeing" not to poach each others ranks for employees. Apparently, it was believed that this tacit agreement amounted to a potential violation of the Sherman Antitrust Act.
In the compensation area it is well established that agreements to set and fix wages can also be found to violate the Sherman Act. How can one be accused of this? Easy. All you have to do is conduct your own survey, share specific salary information with firms in your closely knit industry or geographic area, mix in a few other actions which appear lest than objective and, viola, you have the recipe for disaster.
So, when conducting your salary surveys this year, hear a a few tips on how not to get into trouble:
- Have a third party conduct the survey so that you are not accused of “price fixing” wages
- Avoid the appearance of collusion by not conducting your surveys at the same time every year.
- Exchange data, not commentary on your practices. It will be hard to show that those discussions were necessarily without the intent to collude.
- Never, ever trade information on FUTURE pay rate.
- Make sure the date is aggregated so that you are not able to identify an individual participant in the survey.
Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Revised Federal Tax Bill Does NOT Include COBRA Subsidy Extension
For those who are still wondering about the ongoing COBRA subsidy, it looks as though it has finally reached its end (so far, anyway). The recent tax bill proposed in Congress does not include an extension and the subsidy therefore will not be applicable to those laid off after May 31, 2010. Note, however, that those currently eligible for the subsidy will likely remain eligible for the reduced premium through the end of the year.
For more information, follow this link to an article on this subject.Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
COBRA Extended Again
As I have previously discussed extensively here, the COBRA subsidy has been extended yet again. This time through May 31, 2010. This means that those who lost their jobs are now eligible for the subsidy, so long as the job loss occurred before May 31st.
Here are the details:
1. Notice must be provided to those who experienced a qualifying event (termination of employment) on or after April 1 (The Defense Act and TEA amended ARRA, extending the benefit to March 31).
2 Notice must be provided by June 14th.
3. Those who did not elect COBRA must be be given 60 days to elect after the new, retroactive notice is provided.
So, yet again, we now have to go back and see whose jobs were lost and renotify them of these new benefits. While I am not at all opposed to making these benefits available for a longer period of time, I am concerned about two things: (1) the impact that this continued "back and forth" retroactively compliance mandate has on employers. Enough already. This is unbelievably burdensome and complex; and (2) If we need to provide government subsidies to our former employees to continue their health care on the tax payer dime, isn't there something wrong with the entire picture in the first place?
Lastly, as I have previously mentioned in my tweets, unemployment benefits have been extended as well. This, on top of the fact that over 30 states are, well, broke when it comes to unemployment funds.Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Model CHIP Notice Available - Deadline for Distribution Looming
Last year President Obama signed the Children's Health Insurance Program Reauthorization Act of 2009. CHIPRA includes a requirement that the Departments of Labor and Health and Human Services develop a model notice for employers to use to inform employees of potential opportunities currently available in the State in which the employee resides for group health plan premium assistance under Medicaid and the Children's Health Insurance Program (CHIP). The Department of Labor (Department) is required to provide the model notice to employers within one year of CHIPRA's enactment.
An employer that maintains a group health plan in a State that provides medical assistance under a State Medicaid plan under title XIX of the Social Security Act (SSA), or child health assistance under a State child health plan under title XXI of the SSA, in the form of premium assistance for the purchase of coverage under a group health plan, is required to make certain disclosures.
Specifically, the employer is required to notify (with an Employer CHIP Notice) each employee of potential opportunities currently available in the State in which the employee resides for premium assistance under Medicaid and CHIP for health coverage of the employee or the employee's dependents.
Accordingly, if a group health plan provides benefits for medical care directly (such as through a health maintenance organization); or through insurance, reimbursement or otherwise to participants, beneficiaries, or providers in one of these States, the plan is required to provide the Employer CHIP Notice, regardless of the employer's location or principal place of business (or the location or principal place of business of the group health plan, its administrator, its insurer, or any other service provider affiliated with the employer or the plan).
An Employer CHIP Notice must inform each employee, regardless of enrollment status, of potential opportunities for premium assistance in the State in which the employee resides. The State is which the employee resides may or may not be the same as the State in which the employer, the employer's principal place of business, the health plan, its insurer, or other service providers are located.
The Model Employer CHIP Notice (available below) was designed as a template to cover an array of situations where employees may be entitled to notice and may reside (or their families may reside) in States across the nation. Employers may use the model template as a national notice to fulfill their employer notice disclosure obligation under. However, some States suggest significant modifications to the template and more detailed descriptions of their own State programs.
Employers are required to provide these notices by the date that is the later of (1) the first day of the first plan year after February 4, 2010; or (2) May 1, 2010. Accordingly, for plan years beginning between from February 4, 2010 through April 30, 2010, the Employer CHIP notice must be provided by May 1, 2010. For employers whose next plan year begins on or after May 1, 2010, the Employer CHIP notice must be provided by the first day of the next plan year (January 1, 2011 for calendar year plans).
The Employer CHIP notice is not required to be provided in a separate mailing. Plans may combine information to reduce administrative costs, if the other requirements of this Notice are met. Thus, the Employer CHIP Notice may be furnished concurrent with enrollment packets, etc. CHIPRA requires the notice to be provided annually.
Follow this link to Model CHIPRA Notice
Follow this link to Federal Register/Regulation Concerning the CHIP Model Notice
HR 3326 - ARRA COBRA Provisions Extended
My blogging has been scarce of late due to grading finals and papers, but it should be noted that yesterday President Obama signed into law HR 3326 which extends the C.O.B.R.A. subsidy provisions under A.R.R.A. Technically HR 3326 is the Department of Defense Appropriations Act of 2010. But for those willing to scroll down to page 64 of the 67 page statute you will find the COBRA provisions in Section 1010.
I'll attempt to summarize and clarify the unwieldy statute in the near future, once I emerge from my grading.... In the mean time for the brave and daring.....go to page 64 of the statute by following the link above.Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Proposal to Extend ARRA's COBRA Subsidy
For those who haven't heard, there is legislation pending that would extend ARRA's COBRA provisions. HR 3930 would:
- Permit individuals who are involuntarily terminated between April 1, 2008 and December 31, 2009 to continue group health benefits under COBRA for a period of 24 (instead of the usual 18) months. If the individual’s coverage has expired by the time the legislation is enacted, the individual would have the right to elect COBRA coverage for the additional 6 months.
- ARRA would be amended to extend the 65% subsidy until June 30, 2010, and the subsidy would end the earlier of up to 15 months or until December 31, 2010.
Follow this link to: H.R. 3930: Extended COBRA Continuation Protection Act of 2009Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
2010 Benefit Plan Contribution Limits Just Released by IRS
|401(a)(17)/ 404(l) Annual Compensation||245,000|
|402(g)(1) Elective Deferrals (Your 401(k) Contribution Limit)||16,500|
|408(p)(2)(E) SIMPLE Maximum Contributions||11,500|
|414(q)(1)(B) HCE Threshold||110,000|
|414(v)(2)(B)(i) Catch-up Contributions||5,500|
|415(b)(1)(A) DB Limits||195,000|
|415(c)(1)(A) DC Limits||49,000|
|219(b)(5)(A) IRA Contribution Limit||5,000|
|219(b)(5)(B) IRA Catch-Up Contributions||1,000|
|457(e)(15) Deferral Limits||16,500|
The Internal Revenue Service just issued an announcement on the cost-of-living adjustments applicable to dollar limitations for pension plans and other items for tax year 2010. There had been speculation that the amount of contributions were going to go down, not up, next year in response to economic conditions, inflation and whatever other magic the IRS uses to determine contributions. For the geeks among us: You will notice they are the same as 2009.
Follow these links....
IRS Announcement: COLA Increases for Dollar Limitations on Benefits and Contributions
For more discussion: IRS: Retirement contributions same for 2010
Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
USDOL Beefs Up Enforcement
There has been a great deal of speculation about increased government enforcement in the wake of the recession and the new administration in Washington. Well, now the rubber has hit the road. Asserting that "employment and labor laws are regularly and systematically violated," the US Department of Labor has begun the process of hiring hundreds of new employees to focus on enforcement of federal labor laws. According to US Secretary of Labor, Hilda Solis, "Beginning this year and into 2010, I am hiring an additional 250 new wage and hour investigators so we can continue to effectively monitor wage and hour violations. During the first six months of this year, the Department of Labor already has recovered more than $82 million in back wages for nearly 107,000 minimum wage workers."
In addition, the Wall Street Journal reports the following:
- There will be 150 investigators added in the Wage and Hour division to enforce wage rules and child-labor laws.
- 100 staff will be added to ensure contractors on stimulus projects are in compliance with applicable laws, increasing the division's staff by more than one-third.
- The Employee Benefits Security Administration is adding 75 staffers to conduct nearly 600 more criminal and civil investigations.
- The Occupational Safety and Health Administration recently formed a task force to design an enforcement program for severe violators.
Follow this link to: Secretary Solis' Press Release
Follow this link to WSJ's article: Labor Department to Tighten ScrutinyPosted By Diane Pfadenhauer In Compensation & Benefits , Employment Law , Wage & Hour | Permalink
COBRA Participation Has Doubled Since Passage of ARRA
The ARRA's COBRA subsidy, which provides reduced COBRA charges to eligible individuals has prompted about twice as many eligible participant to elect COBRA than otherwise would have without the subsidy. The Joint Commission on Taxation estimates that about 7 million people will use it for some part of 2009. And, according to the Kaiser Family Foundation with the subsidy, the average family pays $377 a month and the cost will increase to $1,078 a month without it.
Participants are generally eligible for the the subsidy for 9 months. So, for those who took it in February when it began, it will run out in November.Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
USDOL Issues Guidance on Furloughs and Other Pay Reductions
The US Department of Labor recently issued guidance on the subject of furloughs and other reductions in pay. As employers are still trying to deal with the evvect of the languishing economy, many have turned to furloughs and other creative ideas to reduce salary expenses. Among other things, this guidance addresses issues relating to hourly and salaried employees and the effects of a possible pay reduction.
Thanks to Compenation Force Blog for alerting us of this guidance.Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
NY Governor Paterson Signs Expansion of COBRA in New York State
Governor Paterson recently signed into law an extension of COBRA coverage in New York state. According to the press release from his office, the following are the most significant changes affecting employers:
Expansion of COBRA coverage for Employees to 36 Months: This law will increase the period for employees who lose their jobs to continue their health insurance under COBRA from 18 to 36 months. Under the federal Consolidated Omnibus Budget Reconciliation Act (COBRA), workers who lose their jobs can continue purchasing group health insurance provided by their former employers’ group health plans for limited periods of time under certain circumstances for themselves and their families. Federal COBRA generally applies to employers with 20 or more employees, while the State’s “mini-COBRA” law requires that smaller employers – those who have fewer than 20 employees – offer the same continuation coverage. This allows employees to maintain health insurance at a lower cost than if they had to buy it independently on the open market. The Governor’s new law will allow New Yorkers who lose their jobs to extend their health insurance coverage for a longer period of time, which is particularly important in the current economy with its record high level of unemployment.
Insure Dependents through Age 29: This law, outlined by the Governor in his State of the State address, requires insurers to allow unmarried children through age 29 – regardless of financial dependence – to be covered under a parent’s group health insurance policy. Young adults ages 19 to 29 represent 31 percent of uninsured New Yorkers. They often become ineligible for coverage under their parents’ policies at age 19 or upon high school or college graduation, find themselves in entry-level jobs that do not provide employer-based health insurance, and cannot afford to pay premiums for individual insurance policies – which are much more expensive than group policies. Under the new law, premiums will be paid for by families, not employers, and would cost less because coverage is under group policies rather than individual policies. The law also requires insurers to offer employers an option to purchase coverage that includes young adults as dependents in family policies through age 29.
Now in theory, this looks like a bad thing for employers. However, if your company is small, and thus community rates, the former employee on COBRA will be paying the premiums and his/her claims experience will not have an impact on the employer's premiums. However, employers looking to avoid costs may rethink their contributions to family coverage if they will have to cover dependents longer - to age 29.
Here's the link to the Governor's press release: GOVERNOR PATERSON SIGNS LEGISLATION TO MAKE HEALTH INSURANCE MORE AFFORDABLE AND IMPROVE ACCESS TO HEALTH CARE
Posted By Diane Pfadenhauer In Compensation & Benefits , New York Law | Permalink
Workers' Comp Injury - From Your Wellness Program?
Yup. Interesting discussion about Frank P. Torre v. Logic Technology, where the New York State Court of Appeals awarded Workers' Compensation benefits to an employee who was injured at the gym. According to the folks at the Workers' Comp Insider:
On first glance, a case like this might seem open and shut. The employee was on his own time at the gym - the injury did not appear to arise out of and in the course of employment. But on closer examination, the court apparently determined that gym participation was furthering the employer's interest for the networking potential. (Is gym the new golf?) When it is determined that an employer has derived significant business benefit from an activity - such as interacting with clients and prospects - then an activity may be compensable.
They rightfully note that what will happen with all of our wellness program? As more and more employers begin to sponsor these programs in an effort increase employee health (and to reduce medical claims), will injuries sustained be considered workers' compensation injuries?Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Benefits Plan Planning for 2009 - FREE Comprehensive Resources
Soon, if not already, employers are beginning to review their benefits plans for next year. The survey that I have relied on the most is the Kaiser Family Foundation's Annual Employer Health Plan Survey.
This annual survey provides a look at trends in employer-sponsored health coverage, including changes in premiums, employee contributions, cost-sharing provisions, and other relevant information. The 2008 survey included 2,832 randomly selected public and private firms with three or more employees (1,927 of which responded to the full survey and 905 of which responded to an additional question about offering coverage). Researchers at the Kaiser Family Foundation, the National Opinion Research Center at the University of Chicago, and Health Research & Educational Trust designed and analyzed the survey.
The following are some of the topics covered in the 192 page report:
- Cost of Health Insurance
- Health Benefits Offer Rates
- Employee Coverage, Eligibility, and Participation
- Types of Plans Offered
- Market Shares of Health Plans
- Worker and Employer Contributions for Premiums
- Employee Cost Sharing
- High-Deductible Health Plans with Savings Option
- Prescription Drug and Mental Health Benefits
- Plan Funding
- Retiree Health Benefits
- Wellness Programs and Employer Opinions
Oh, and did I mention? It's FREE! Follow this link:Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Affordable Health Choices Act
For those feeling too inundated to follow the debate on health insurance at the federal level, here's a basic overview of the what has come out of Senate's Senate's Health, Education, Labor and Pensions (HELP) Committee on this subject.
Affordable Health Coverage:
Prohibiting Discrimination Based on Health Status. In issuing health insurance policies, insurers will not be permitted to establish terms of coverage based on any applicant’s health status, medical condition (including physical and mental illness), claims experience, prior receipt of health care, medical history, genetic information, evidence of insurability (such as being a victim of domestic violence), or disability. (§2706)
Ensuring the Quality of Care. Health insurance policies will be required to include financial incentives to reward the provision of high quality care that include case management, care coordination, chronic disease management, wellness and health promotion activities, child health measures, activities to improve patient safety and reduce medical errors, as well as culturally and linguistically appropriate care. (§2707)
Extension of Dependent Adults: All individual and group coverage policies will be required to continue offering dependent coverage for children until the child turns age 26, according to regulations to be established by the Secretary of Health & Human Services. (§2709)
No Lifetime or Annual Limits. No individual or group health insurance policy will be permitted to establish lifetime or annual limits on the dollar value of benefits for any enrollee or beneficiary. (§ 2710)
Shared Responsibility for Health Care:
This subtitle creates a shared responsibility framework. Individuals will be required to have health coverage that meets minimum standards and to report such coverage annually. Exemptions will be made for individuals unable to access affordable care. Fees will be assessed on employers who do not provide qualifying coverage for full- and part-time employees. Employers with 25 or fewer employees are exempt from penalties. Standards will be established to ensure efficient use of health information technology for enrollment in qualified health plans.
For those with ALOT of free time on their hands, follow this link to the Committee's Release: In Historic Vote, HELP Committee Approves the Affordable Health Choices Act
Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
2009 - 2010 Salary Budget Planning - Almost Going Backwards....
Recent research by World at Work in its 2009-2010 Salary Survey shows that based upon a survey of over 2600 companies conducted in May 2009, that your average salary increase for this year will range from 2.0 to 2.3 percent, depending on company level. For New York state, actual salary budget increases for 2009 came in at a whopping 1.9% and next year is anticipated at 2.9%. For those in New York City, the 2009 budget increase is the same at 1.9% and next year's is anticipated at 2.8%. Wow! That should barely cover the recent train/bus/subway fare increase!
Follow this link for more information on the World At Work 36th Annual 2009-2010 Salary Budget Survey.
Thanks to Ann Bares at Compensation Force for alerting us.Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
My COBRA Webcast
Here is a link to my COBRA Webcast - Ensuring Compliance with the New COBRA Revisions Under the American Recovery and and Reinvestment Act. Can't believe that I forgot to post this, although I know a number of you accessed this through my recent newsletter.
Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Department of Labor Issues Model COBRA Notices for Compliance Under ARRA
Today the US Department of Labor issued revised COBRA notices which are intended to help organizations comply with the new COBRA provisions of the American Recovery and Reinvestment Act.
There are four new notices available:
1. General Notice (Full version) – Send this notice to ALL qualified beneficiaries going forward. This combines a general COBRA notice with the premium reduction provisions of ARRA
2. Abbreviated Version of the General Notice – This notice covers just the premium reduction information under ARRA – Send this notice to individuals who experienced a qualifying event during on or after September 1, 2008, have already elected COBRA coverage, and still have it.
3. Alternative Notice – This notice is sent to persons who became eligible for continuation coverage under a State law. Plans will need to modify notice to bring it into compliance with state law.
4. Notice in Connection with Extended Election Periods – This is the notice that everyone has been waiting for. It includes information on ARRA’s special election opportunity along with the premium reduction information. This notice MUST be provided to these individuals by April 18, 2009. Plans subject to the Federal COBRA provisions MUST send this notice any “assistance eligible individual” who:
a. Had a qualifying event at any time from September 1, 2008 through February 16, 2009; and,
b. Either did not elect COBRA continuation coverage, or who elected it but subsequently discontinued COBRA.
REMEMBER: You will still have to edit these forms for your own use. Follow the instructions or seek professional help!
Follow this link to the Department of Labor's Page containing the new notices.Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
The "Reverse Merit Program" - A Crazy Idea for Crazy Times
In the midst of the current economic crisis and the flurry of employment law activity under the new administration, it's easy to forget the first word of this blog. The whole purpose of the name Strategic HR Lawyer was intended to focus not only on employment law but also elements of strategic human resources management. I began my career in HR over two decades ago and even after I became an attorney, it has influenced my practice, how I approach problems and advise on legal issues.
Here's my beef for today. For the last several months I've heard all about the economy, and all about these new laws. In fact, many of my recent posts have focused on attempting to keep my readers up to date on the numerous legislative changes. Today, I am putting my HR hat on and plan on putting it on more regularly on this blog. Why? Because, quite frankly, if HR professionals spend their time becoming junior lawyers and abdicate their leadership opportunities by letting bean counters lead the company's charge through these tough economic times, then guess what? HR will have lost its opportunity to emerge as transformational leaders in organizations and the profession will reaffirm the negative stereotypes that are periodically thrust upon it.
The Compensation Force Blog (by World at Work) had a recent post on the estimates for 2009 salary increases. The post cites a recent Watson-Wyatt survey on the Effect of he Economic Crisis on HR Programs which, in part demonstrates that projected compensation budget increases for this year are still in flux. That notwithstanding, how many of us have heard about wage frees for this year? To me, wage freezes are about the same a hiring freezes – shortsighted and usually the decisions of narrow minded people (unless company is in a true crisis). Both of these approaches do nothing to engage the workforce, promote productivity and retain loyal and motivated employees for the long haul.
So here's my wild idea for today: Instead of letting the bean counters implement wage freezes or cuts, why don't we adopt what I'll call the “REVERSE MERIT PROGRAM” - If we can, and have been for years, dole out salary increases based on a performance management system that gives the best raises to the star performers and the lowest or no raises to the poorest performers, then why don't we use that same system for salary cuts? In other words, freeze the salaries of the best performers and dole out salary "cut backs" to employees based on performance measurements. Isn't compensation supposed to be an "investment" in our people? So you can cut your salaries will STILL “reward” your top performers. Now, I know that the critics are saying that companies have already slashed to the bone and there are no “poor” performers left. To that I say, baloney. If nothing else, we should not stop thinking about the opportunity as HR professionals to make a positive difference in the lives of people who work at our organizations and design programs that promote the achievement of organizational objectives – despite how difficult economic conditions are.
So what's your idea?
Posted By Diane Pfadenhauer In Compensation & Benefits , HR Strategy | Permalink
Transit Benefit Increase
Part of the AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009 deals with the subject of transit benefits. Previously, employers could offer a benefit to employees to permit them to spend $120 of pre-tax income in an employer-sponsored commuter benefits program and then use this money to pay for mass transit. ARRA raises the commuter mass transit benefit to $230 per month which is equivalent to over $1000/year. I know when I was commuting daily to New York City a few years ago, the $120 barely made a dent in my commuting costs. With the seemingly annual increases in subway and train fares, this is a badly needed increase.
The new amount is intended to be equivalent to the amount previously available for parking and is intended to be indexed in 2010.
See the following - page 13 - for a brief summary of the subsidy. THE AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009 – FEBRUARY 12, 2009 - FULL SUMMARY OF PROVISIONS FROM SENATE FINANCE, HOUSE WAYS & MEANS COMMITTEESPosted By Diane Pfadenhauer In Compensation & Benefits , Employment Law , Policies & Procedures | Permalink
COBRA Guidance from the USDOL and IRS
By now, most everyone has regained a bit of composure after attempting to figure out what to do about the COBRA subsidy under the The American Recovery and Reinvestment Act of 2009. My perspective is that way too many organizations attempted to be first out of the gate with announcements for their clients regarding the new subsidy. The result? Even the most prestigious of law firms issued guidance that was just plain WRONG. To make matters worse, some issued new guidance and politely asked recipients to disregard the initial guidance. To make matters even more worse (is that proper English?), some of these firms quietly reissued publications on their websites and didn't advise that they had updated previously issued guidance.
Now, I am far from perfect, but my initial advice to my clients was this: CHILL! Within 72 hours of President Obama signing the Act, I had read a dozen conflicting fact sheets from seemingly well intentioned advisors. Why CHILL? Let's face it. Everyone is in the exact same boat. The USDOL and the IRS were slated to issue guidance shortly after the the law was signed. Many of the provisions of the subsidy were administratively impossible (hmmm, a negative tax liability on a 941?).
So, guess what? The IRS and the DOL have both issued guidance regarding the subsidy. Here are the links:
US Department of Labor - COBRA under the ARRA - it took me a while to find this one buried on the DOL website. Remember, this is the same website that suggests "Osama" when you search for President Obama......
Revised Form 941 - The IRS says it's effective January 2009 - Cute.
IRS Form 941 Guidance Containing COBRA Subsidy Instructions Under ARRA - Yep, the form says it's effective January '09, but nicely buried on page 6, you will find instructions regarding the COBRA subsidy that went into effect, ummmm, February.
So what's the point of all of my cynicism? The message here is to start with the guidance issued by the DOL and the IRS, be very wary of what you read that is meant to be guidance from others. It could be wrong and it's not necessarily in others' best interest to admit to you that they were wrong.Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Your 2009 Raise is Going DOWN
World at Work recently issued the results of a recent survey on compensation budget increases for employees for 2009. The issue relates to whether employers, in light of the economy, are decreasing their salary budgets for 2009 from their original estimates/budgets. Results from the WorldatWork Special Update: 2008-09 Salary Budget Survey (of over 1000 employers):
- Across all employee categories, industries and regions, employers plan to lower their 2009 salary budget increase projections by 0.8 percentage points.
- Average salary budget increases this year will be 3.1% compared to 3.9% when data was first collected in April 2008.
- 77% of the workforce can still expect to receive base pay raises.
- Metropolitan areas with the largest projected salary budget increases of 3.1% are: Philadelphia, Pittsburgh, San Francisco and Washington, D.C.
- Half of participating organizations (51%) made changes to their 2009 projected salary budget increases, with more than 90% of those making changes lowering their salary budget increases by an average of 1.6%.
- For exempt salaried employees, 10% of participating organizations will be freezing pay in 2009.
- For organizations reducing salary budget increases, 19% to 33% are cutting salary increase budgets to zero.
Ouch. For more information regarding the survey:Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Time To Post Your OSHA 300 - Employer Report of Injuries
By February 1st, most employers must post a summary of workplace injuries which occurred in the the previous year. Even if you had no injuries last year, you must still post the report with “zeros” in the required fields.
Follow this link to the Occupational Safety and Health Administration's:
Salary Increase Projections for 2009
For a good overview of salary increase estimates for 2009, follow this link to the Compensation Force Blog for:
According to World at Work, which recently issued this information, the projected increases range from 3.7% to 3.9%. Doesn't seem like much when the news tells us about inflation rising every day.
Thanks to The Compensation Force Blog for bringing this to our attention.Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
IRS Announces HSA and HDHC Limits
HSA's Contribution Limit – Individual coverage - $3000, Family coverage - $5950
HDHC's Minimum Deductible – Individual - $1150, Family - $2300
HDHC's Annual Out of Pocket Expense Limit – Individual - $5800, Family - $11600
For more information follow this link to:
Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
"HEART" Act for Military Personnel to Provide Additional Benefits
The Heroes Earnings Assistance and Relief Tax Act of 2008 is a law that amends the Internal Revenue Code in order to provide certain benefits to members of the military, Reserves and National Guard who work for an employer in addition to performing their military duties.
Here are some of the more interesting provisions:
payments made by an employer to supplement the wages the employee receives in the military must have proper tax withholding by the employer. This applies to payments made after December 31, 2008.
Interestingly, the employee receiving such payments is to be treated as an employee under the employer's retirement plans, even though he or she may be on active duty. The employer must include the payments it makes to the employee as wages when calculating retirement plan benefits/contributions. BUT, at the same time, the employee can be considered TERMINATED from employment so that he/she can take advantage of certain plan provisions that permit the individual to obtain certain distributions from the plan.
With respect to plan distributions or withdrawals, the participant employee/military service member, under certain conditions, can take withdrawals from the plan prior to age 59 ½ without penalties. Similar provision apply to Section 125 Plans.
If a service member is killed in the line of duty, he/she is now treated for retirement plan purposes as if he/she died while employed by the employer – assuming that the service member returned to duty with the employer on the date before his/her death.
For small employers, there is a tax credit for providing wages to supplement military pay. This applies to employers with less than 50 employees.
Janell Grenier's post her her Benefits Blog:
Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
401(k) Plan Participants Can Now for Fiduciary Breach
For the full text opinion, follow this link: LaRue v. DeWolff, Boberg & Assocs., Inc.
Posted By Diane Pfadenhauer In Compensation & Benefits , Retirement | Permalink
Free Compensation Resource from World at Work
- Stock plans
- Equity-based plans
- Short- and long-term incentive plans
- Executive perquisites
- Executive benefits
- Deferred compensation plans
- Employment agreements
- Severance agreements
Hat tip to Compensation Force for bringing this to our attention.
Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
IRS 2008 Benefit Plan Limits Announced
- Maximum 401(k) Contributions - $15,500
- Maximum Compensation Limit - $230,000
- Highly Compensated Employees - $105,000
- Annual Contribution Limit for Defined Contribution Plans - $46,000
- Annual Benefit Limit for Defined Benefit Plans - $185,000
- Age 50 and Older Catch-Up Contributions (for other than SIMPLE Plans) - $5,000
- Annual Contribution Limit for 457 Plans - $15,500
Proving Dependent Status for Benefits Coverage
According to this article, audits are conducted in a variety of ways.
- Some companies start with an amnesty program, permitting workers to quietly remove those who don't belong on the plan.
- The employers will take step of requiring workers to submit proof of eligibility before family members can remain on the plan.
- Some audits have all workers fill out a questionnaire about dependents but only later collect documentation from a random sample.
Here's the kicker:
5 percent to 10 percent of dependents will come off the rolls after an audit, including those dropped because workers didn't submit the paperwork. Some companies with more generous benefits plans have seen 20 percent of dependents dropped.
All you have to do is "do the math" on this one and it's obvious why employers would do audits.
Posted By Diane Pfadenhauer In Compensation & Benefits , Policies & Procedures | Permalink
New "QACA" Option for 401(k) Enrollment Can Eliminate Discrimination and Top Heavy Testing
· all employees eligible to participate in the 401(k) plan must be covered except employees who either elect not to participate or elect to participate at a different contribution rate.
· the minimum automatic employee deferral percentage is 3% of compensation for the first and second years the employee is covered by the QACA, increasing by 1% each year thereafter to 4% in the third year, 5% in the fourth year and 6% for each year thereafter. The automatic contribution percentage cannot exceed 10% of compensation at any time.
· It requires a minimum level of employer contribution – either a matching contribution or a non-elective contribution
· employer contributions can be subject to a two year vesting requirement.
· a QACA must provide employees with a notice that explains the automatic enrollment provisions and the employee's right to elect not to participate in the arrangement or to participate at a different level.
· an employee can elect out of automatic contributions after they have begun and can withdraw contributions made under an automatic enrollment arrangement provided the withdrawal occurs within 90 days after the first automatic employee contribution is made. This permissible withdrawal is not subject to the 10% early distribution penalty tax.OK, I'm not sure how you are supposed to pronounce "QACA" yet, but this article from Fisher & Phillips has a more comprehensive explanation of what it's all about.
Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
2008 Salary Increase Planning
Interestingly, however, organizations have increased the percentage budget allocated to bonuses. According to World at Work, "In the 1990s, employers budgeted only about 5% of their payroll for bonuses. For 2008, companies anticipate devoting nearly 12% of payroll to bonuses — using pay as a way to retain and reward valued employees."
The good news in all of this...consumer inflation, which was 2.7% for the 12 months ending in June. The bad news, we'll likely continue to see double digit increases in health care costs.
Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
More on Establishing Liability that Didn't Really Exist
Posted By Diane Pfadenhauer In Compensation & Benefits , Employment Law | Permalink
How to End Up With COBRA Liability When You Have Fewer Than 20 Employees
A recent Supreme Court Case discusses the doctrine of estoppel and the Sixth Circuit relied on that case in noting that an employer with fewer than 20 employees may be liable for COBRA coverage. The Supreme Court case in question was Arbaugh v. Y&H Corp. and the Sixth Circuit Case was Thomas v. Miller. According to the Health Plan Law Blog:
This holding stands for the proposition that, even though an employer may have less that 20 employees, it may be subject to COBRA requirements if the employer has used “conduct or language amounting to a representation” that an employee is entitled to COBRA benefits. If the employer’s insurance contract does not provide COBRA benefits, the employer could be stuck with huge medical bills with no insurance carrier to turn to for reimbursement.
In this case, although the plaintiff actually lost her case, the Sixth Circuit noted that the doctrine of estoppel could apply in an instance such as this where the employer may have held itself out as to have a plan subject to COBRA when in fact it did not.
And, according to Michael Fox over at Jottings by an Employer's Lawyer:
...an employer's conduct under certain circumstances can cause it to be covered, even though it falls below the statutory threshold.
He further notes the threshold that a plaintiff would have to satisfy:
- the employer must have used “conduct or language amounting to a representation of material fact;”
- the employer must have been aware of the true facts;
- the employer must have had an intention that the representation be acted on, or have
conducted itself in such a way that the employee had a right to believe that the employer's conduct was so intended;
- the employee must have been unaware of the true facts; and
- the employee must have detrimentally and justifiably relied on the representation.
While most seasoned HR professionals could hardly imagine how something like this could happen, the reality is that we see many smaller employers that presume that they are covered under COBRA and a variety of other laws that do not apply to them. This is truly a lesson for all of them.Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
DOL Issues Comments on FMLA
For some late night reading, follow these links:
"The 15,000 comments from workers, employers and others attest to the importance of family and medical leave for America’s caregiving workforce," said Victoria A. Lipnic, assistant secretary of labor for the department’s Employment Standards Administration. "While family and medical leave is widely supported, we also heard from many workers and employers that there are challenges with the way certain aspects are being administered. This report provides information for a fuller discussion about how some of the key FMLA provisions and their interpretations have played out in the workplace."
- The DOL's Press Release - Report on FMLA Request for Information issued by U.S. Department of Labor
- The Executive Summary
- The Request for Information Website
- The Whole Report - a mere 181 pages
Paid Family Leave
According to the New York State Paid Family Leave Coalition, the legislation would expand New York’s Temporary Disability Insurance (TDI) program to include paid family leave. The bill would provide up to 12 weeks of paid leave to care for a new baby or a newly placed adopted child, or for a seriously ill family member, including a spouse, parent, in law, sibling, child or domestic partner. Benefits – in line with current TDI benefits in New York – would be half of weekly wages up to a maximum of $170 a week. The proposal calls for the extension of benefits to be paid for by an increase in employer contributions.
Needless to say, the Business Council of New York State, a business advocacy group, opposes paid family leave.
As for me, unless we can come up with solutions for the administrative nightmare that FMLA already is and unless we can provide benefits without burdening small employers, it's just another tax on already over-burdened businesses in NY - particularly small ones. I'm not suggesting that the burden to care for family members should be overlooked by society and recognize that there truly are those who are torn between caring for family members and paying their bills. Unfortunately, however, the burden on certain employers, at times, outweighs the social benefit of this type of legislation. Posted By Diane Pfadenhauer In Compensation & Benefits , Employment Law | Permalink
A (Minimum Wage) Raise in Your Future?
Independent Contractor or Employee - Now What?
Benefit Trends to Watch
- Increased focus on high-deductible health plans (HDHPs) coupled with a reimbursement arrangement (e.g., health savings accounts), although few employers appear to be completely replacing their current plans with an HDHP.
- More benefits information and tools online.
- As more popular prescription drugs come off patent in the next three years and their prices are reduced, employers will loosen their requirements that employees use generic drugs whenever possible.
- Greater integration between healthcare and absence management programs.
- More on-site clinics in the workplace.
- Companies will consider new retirement plan options such as cash balance plans or other hybrid models.
- Companies will consider alternative investments in retirement plans such as private equity, hedge funds, infrastructure and real estate.
Don't Forget to Post Your OSHA Log
Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
High Deductible Health Plans - Not So Popular
An objective national survey (by the Kaiser Family Foundation and Health Research and Educational Trust) reports that in 2006 only about 7 percent of American employers offered an HSA-qualifying HDHP or an HDHP with a HRA. Four percent of workers were enrolled in these products -- and only 19 percent of employees who were offered these products along with other health coverage options enrolled in such a plan. The proportion of firms offering and employees enrolling in these products in 2006 were not statistically significantly different from those in 2005.A few years ago it seemed as though these plans were all the rage. Some of the reasons attributed to their lack of popularity, according to BNA, include:
- that their average national total cost (the HDHP premiums plus the employer contributions to an HSA or HRA, if employers make such a contribution) is no lower than that of traditional plans (like HMOs and PPOs).
- employee premium contributions for the HDHP plans are similar to those for other types of coverage, yet the consumer-directed plans include much higher cost sharing.
- While the current HDHP + HSA model has been in place only 3 years, research on experience of HRAs and other earlier types of individual spending accounts reveal mixed results.
- people who enroll in such plans are younger and healthier and have higher incomes than those who do not.
- only 10 percent of Americans account for 69 percent of health care costs --- because they either have expensive long-term chronic illness or experience high cost acute episodes. Even if these people desire to be "prudent" health care purchasers, they quickly exhaust their deductibles and thereafter no longer have such an economic incentive.
- some opponents of the consumer-directed model express concern that high deductible plans create incentives to skimp on early preventive and primary care that will lead to worse health and no reduction in (but possibly higher) overall spending for their later care.
Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Direct Deposit - How Uncle Sam Can Encourage Employees to Use It
Posted By Diane Pfadenhauer In Compensation & Benefits , Policies & Procedures | Permalink
2007 Benefit Plan Limits
Highly Compensated Employees**
Key Employee Officer Compensation**
Maximum Annual Benefit - Defined Benefit Plan**
Maximum Annual Contribution - Defined Contribution Plans**
ESOP Limits- Dollar limit for determining lengthening of 5-year period*
ESOP Limits - Dollar amount for determining max. amount subject to 5-year distribution*
Maximum SIMPLE contribution
FICA Wage Base ***
*Calendar year limitation
**For plan years beginning in the calendar year. The compensation limit and key employee officer compensation also apply for purposes of Code Section 409A.
***Calendar year limitation for FICA withholding purposes and for plan years beginning in the calendar year for retirement plan purposes.Posted By Diane Pfadenhauer In Compensation & Benefits , Trends | Permalink
It's Bonus Time!
Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Happy Birthday 401(k)
- 25 Years ago, there were 30 million active participants in traditional defined benefits (DB) plans and 19 million in other non-401(k) defined contribution plans.
- Today there are about 47 million participants in 401(k) plans, 21 million participants in DB plans and 8 million in other defined contribution plans.
More on Health Benefit Plans Paying Less, Costing Employees More
- For the average employee, premiums and out-of-pocket expenses will reach $2,904 a year for a family, up $300 from 2006. That's the pass-along pain of the costs that employers now endure, nearly $9,000 per employee, up an estimated $518 from this year.
- Containing those costs is a new corporate imperative. Among the tactics: bosses are skimping on raises.
- Someone making $40,000 a year can anticipate a 4% pay increase next year. (Don't spend it all in one place.) With health-care costs expected to rise about 7%, that means at least 16% of that raise would go to higher premiums or new out-of-pocket expenses.
"If you're young, healthy or wealthy, health savings accounts, or HSA's, can help to defuse a looming time bomb -- the six-figure, out-of-pocket health-care tab that experts believe most of us will face during retirement. Because the young and healthy generally don't spend much on health care today, current savings can pile up for later. The wealthy, meanwhile, can max out their savings and hope they don't need it all before they retire."
The myth of the HSA is even more absurd as we hear benefits consultants tout the benefits of having employees "empowered" to negotiate benefits costs and think twice before going to the doctor. Some would have us believe that employees have been on the gravy train for far too long, that they go to the doctor when it's unnecessary whenever they feel like it and that they have no sense of what health care costs. While that may be true for some, it is certainly not true for all.
Too bad we still have plans out there that require people to go to a primary care physician, who gets to charge for doing nothing other than filling out a form. Add to that the reality that the public can obtain very little information on what health care charges will cost as they are placed at a considerable disadvantage when dealing with health care providers. I'll stop now. Can you tell I'm annoyed?
Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
2007 Benefit Planning
Health care costs increases for 2007 are predicted to be the lowest in years. According to Hewitt Associates, most health care plans should see an average cost increase of 7.7% in 2007. Despite this seemingly modest increase, it still outpaces inflation and employee salary increases. For example,
In 2007, Hewitt projects, salaried employees can expect a base salary increase of 3.7 percent.1 Therefore, an employee making $40,000 today who receives the average salary increase ($1,480) will use 16 percent of that salary increase to pay for the increase in health care costs next year.
A few metropolitan areas, however, will continue to see double-digit increases. These include San Antonio (13.1 percent), St. Louis (13 percent), Hartford (12.8 percent), Milwaukee (11.4 percent), Cleveland/Akron (10 percent) and San Francisco (10.5 percent). In addition, Hewitt expects the following increases by plan type:
7.0 percent for preferred provider organization (PPO) plans
8.0 percent for health maintenance organization (HMO) plans
9.0 percent for point-of-service (POS) and indemnity plans.
Scary to think that this is actually good news.
Posted By Diane Pfadenhauer In Compensation & Benefits , Trends | Permalink
Pension Protection Act of 2006 Resources
•Expansive sweep affects virtually all employer retirement plans
•Affects defined contribution plans, 401(k) plans, IRA’s, deferred compensation plans, retiree health benefits, health and welfare plans.
•Effective date: it depends
–Some are retroactive•Funding of Single Employer Defined Benefit Pension Plans:
–Some are when the regulations are issued
–New funding rules go into effect for 2008 plan year•Hybrid Plans – i.e. Cash Balance Plans
–Will require DB plan sponsors to contribute substantially more than they do under existing law
–Now will require 3 year cliff vesting•Provisions Affecting 401(k), 403(b) and 457(b) Plans
–“Wear-away safeguards” – where the plan is created from a traditional DB plan
–Investment Advice to Participants – as of Jan. 1, 2007 a “fiduciary advisor” can now provide investment advice·Automatic Contribution Safe Harbor for 401(k) Plans
–Paid by employer or from plan assets
–The DOL is required to issue a model notice for this provision
•“Qualified automatic contribution arrangements” - automatically defer a stated percentage of an employees pay and are exempt from the ADP and Top Heavy rules.
–Uniform application•Additional Provisions
–Automatic contribution amount (3%, but no more than 10%)
–Option to opt out
–Vesting in employer contributions at 2 years
–Advance notice of automatic contribution feature
–Diversification requirements – for public employers who provide contributions in the form of employer stock
–Rules concerning “Blackout Periods”
–Modifications to 5500 Forms
–DB Plans must provide benefits statements every three years
–Changes to Summary Annual Report
Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Medical Identity Theft and Your Medical Plan
Although the most typical of the millions of identity theft cases in the U.S. each year involve credit cards, a 2003 federal report estimated that at least 200,000 instances involved medical identity fraud. Experts believe that the rising cost of healthcare is driving more identity theft, and that many people are unaware they have become victims unless they receive a hospital bill or query from their insurer. The bulk presumably remain invisible.
With their medical records compromised, victims of this kind of fraud face a greater risk of injury or even death if doctors make treatment decisions based on bad information. Files might list incorrect prescriptions, the wrong blood type, or an erroneous diagnosis.Imagine finding out that after your wallet is stolen, someone has has used the emergency room in your name. The thief's medical history is now co-mingled with yours in your medical records - a disaster waiting to happen.
For those in the business of purchasing insurance for our businesses, this clearly demonstrates the need to audit claims and plan usage. It will serve not only to protect employees and plan participants but ensure that the experience charged back to our plans really belongs there.
Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Employer Sponsored Elder Care Benefits On the Rise
- By 2020, one in three U.S. households is expected to be involved in caring for elderly or disabled relatives, up from one in four today
- About a quarter of all companies currently provide some basic elder-care benefits, mainly referrals that help employees find caregivers and legal services
- Some companies are adding such benefits even as they cut back in other areas, especially health-care coverage, where costs are soaring. Why? Because they are cost effective.
- leave sharing programs
- allowing employees to add an adult relative to the employer's health plan, such as an elderly parent
- state disability programs, such as in California, that allow for partially paid family leave
- emergency elder care services
Posted By Diane Pfadenhauer In Compensation & Benefits , Trends | Permalink
Your Raise Next Year
Delta Terminates Pilots' Pension Plan - Now We Get to Fund It
Delta argued that the plan poses an immediate $1 Billion liability that would prevent the company from emerging successfully from bankruptcy. The pilots' union has agreed to the termination. I suppose a job is better than a pension?
Posted By Diane Pfadenhauer In Compensation & Benefits , Corporate Turnaround | Permalink
09/11 Illnesses Continue 5 Years Later
"Roughly 70 percent of nearly 10,000 workers tested at Mount Sinai from 2002 to 2004 reported that they had new or substantially worsened respiratory problems while or after working at ground zero."In addition:
- One-third of the patients in the new study showed diminished lung capacity in tests designed to measure the amount of air a person can exhale.
- Among nonsmokers, 28 percent were found to have some breathing impairment, more than double the rate for nonsmokers in the general population.
- The study is among the first to show that many of the respiratory ailments — like sinusitis and asthma, and gastrointestinal problems related to them — initially reported by ground zero workers persisted or grew worse in the years after 9/11.
Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Pension Protection Act of 2006
There's been a lot of buzz lately about the Pension Protection Act of 2006. Thankfully, the US Department of Labor has updated its website to include a slew of information about this new law. Although it contains all sorts of information, including a 388 page technical "explanation," I'd start by looking at the Fact Sheet.
Hat tip to the Workplace Prof Blog for bringing this to our attention.Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Outsourced Healthcare or Medical Tourism
Carl Garrett, a paper-mill technician, is scheduled to travel to New Delhi, where he will undergo two operations. Though American individuals have gone abroad for cheaper operations, Mr. Garrett is a pioneer of sorts. Garrett's medical care alone may save the company $50,000. And instead of winding up $20,000 in debt to have the operations in the US, he may now get up to $10,000 back as a share of the savings. He'll also get to see the Taj Mahal as part of a two-day tour before the surgery. His two operations could cost $100,000 in the US; they'll run about $20,000 in India.Some others who have gotten on the bandwagon....
•Insurers Health Net of California already contracts with medical clinics on the Mexico side of the US border.
•A West Virginia state legislator introduced a bill this year that would encourage state workers to seek treatment overseas using incentives such as cash bonuses and family travel.
•United Group Programs in Florida, which administers self-insurance programs for small companies, has contracted with a Thailand hospital for its employer clients.
•Inquiries from self-insured employers are brisk at IndUShealth in Raleigh, N.C., which specializes in offshoring serious medical cases such as rotator cuff surgery and gall bladder removal to IndiaSo, can someone please tell my why I can't get my prescriptions from Canada?
Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
The New World Order of Social Security Disability Claims Processing
The Disabled Worker Law Blog (by my buddy and fellow Lex-blogger, Troy Rosasco) discusses changes to the Social Security Disability claims process. These changes are effective August 1, 2006. An overview of the changes include:
- Social Security Disability Attorneys are not required to submit adverse medical evidence, as was originally proposed in the NPRM.
- Social Security Disability Lawyers will now have a 75 day notice of an Administrative Law Judge hearing, an improvement over the current 20 day notice requirement.
- Quick Disability Determinations (QDDs) for clearly disabled claimants
- Establishment of a new Medical and Vocational Expert System (MVES)
- The new position of the Federal Reviewing Official (RO), a government attorney who looks at claims between initial denial level and the ALJ hearing level
- A new Decision Review Board (DRB) replacing the old Appeals Council
For the details, follow this link to: New Regulations Under the Social Security Disability Claims Process Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Donated Leave Programs - IRS Guidance
I have included the gist of IRS Notice 2006-59 here:
A major disaster leave-sharing plan is a written plan meeting each of the following requirements:
- The plan allows a leave donor to deposit accrued leave in an employer sponsored leave bank for use by other employees who have been adversely affected by a major disaster (as declared by the president).
- The plan does not allow a leave donor to deposit leave for transfer to a specific leave recipient.
- The amount of leave that may be donated by a leave donor in any year generally does not exceed the maximum amount of leave that an employee normally accrues during the year.
- A leave recipient may receive paid leave (at his or her normal rate of compensation) from leave deposited in the leave bank. Each leave recipient must use this leave for purposes related to the major disaster.
- The plan adopts a reasonable limit, based on the severity of the disaster, on the period of time after the major disaster occurs during which a leave donor may deposit the leave in the leave bank, and a leave recipient must use the leave received from the leave bank.
- A leave recipient may not convert leave received under the plan into cash in lieu of using the leave. However, a leave recipient may use leave received under the plan to eliminate a negative leave balance that arose from leave that was advanced to the leave recipient because of the effects of the major disaster. A leave recipient also may substitute leave received under the plan for leave without pay used because of the major disaster.
- The employer must make a reasonable determination, based on need, as to how much leave each approved leave recipient may receive under the leave-sharing plan.
- Leave deposited on account of one major disaster may be used only for employees affected by that major disaster. Except for an amount so small as to make accounting for it unreasonable or administratively impracticable, any leave deposited under a major disaster leave-sharing plan that is not used by leave recipients by the end of the period specified in paragraph 5, above, must be returned within a reasonable period of time to the leave donors (or, at the employer’s option, to those leave donors who are still employed by the employer) so that the donor will be able to use the leave. The amount of leave returned to each leave donor must be in the same proportion as the amount of leave donated by the leave donor bears to the total amount of leave donated on account of that major disaster.
Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Can an Employee on Workers' Comp Also Sue His Employer?
I wonder what the Workers' Comp Insider thinks of this? Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Say Goodbye to Retiree Health Benefits
The results of a survey of Fortune 500 companies by the consulting firm, Watson Wyatt, tells us that there is a growing trend for Fortune 500 companies to reduce or eliminate retiree health benefits. According to the survey:
- Ninety-five percent of the mostly Fortune 500 companies polled expect to further restrict their retiree health plans over the next five years, and 14% plan to stop providing coverage entirely.
- About a third of U.S. employers offered current workers retiree coverage in 2005, down from about two-thirds in 1988, according to a recent study by the non-profit Kaiser Family Foundation.
- According to Standard & Poor's, plans for retiree benefits at S&P 500 companies, excluding pensions, were underfunded by $321 billion, meaning promises to retirees are only 22% funded.
When Will the Cost of Family Health Coverage be More Than Your Salary?
With family premiums (HMO and other plan types) hovering at the $11,000 mark, and rates increasing by, say, 7% per year, we'll have health insurance costs of $20,000 per family in ten years.
The 7% increase quoted is a wildly optimistic figure, as rates have increased at least 9% each year for the last five years. And, with the number of people without insurance increasing every year, further adding to cost-shifting to insureds; tighter eligibility requirements for Medicaid; and increased employee cost-sharing the middle class (read - voters) will be increasingly demanding action - and if the next presidential election does not have health care as a top theme, it will only be because of a horrendous natural or man-made disaster. Although one could reasonably consider the US health care system a man-made disaster, I'm thinking more on the order of foreign policy. What does this mean for you? More pain before our elected officials get their collective act together.
Joe makes a good point. This is a death spiral/perfect storm for our health system. Sometimes our leaders would have us think that social issues, with little economic consequence, are the most important issues facing the nation. The reality is that we all have differing opinions on many of those issues, but they should not cloud the reality that we have significant issues, such as health care, to face as a nation. Posted By Diane Pfadenhauer In Compensation & Benefits , Trends | Permalink
Workers' Compensation Premiums Go to the End of the Line in Bankruptcy
Over 47,000 Take GM's Buyout Offer
Between GM & Delphi, 47,600 employees have elected to take the buyout offered a few months back. I recently commented on the enormity of this plan here. According to the New York Times, almost one third of GM's hourly employees and one half of Delphi's took the offer. Ultimately GM plans to eliminate over 30,000 employees and the results of this offering will enable it to meet that goal earlier than expected. Some additional facts:
About 30,400 G.M. workers, who had at least 26 years on the job, took early retirement packages that include payouts of up to $35,000 and full benefits. The remaining 4,600 will receive either $70,000 or $140,000, depending on their experience, but give up all their benefits except their pensions;
Employees at both G.M. and Delphi who accept the deals have seven days to change their minds. Mr. Wagoner said that window had closed for nearly all of those who said they planned to leave and that he did not expect the final number to change significantly.
The program will cost G.M. about $3.8 billion but save it $8 billion a year. G.M. lost $10.6 billion last year.
Universal Health Coverage?
While an interesting concept, the group does not say how such health care will be paid for. Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
What's Permissible Under Your Dependent Care Reimbursement Plan
The proposed regulations clarify that when it comes to school-related expenses, nursery school and preschool can qualify as employment-related expenses as well as before- and after-school care. The IRS goes on to note that a day camp will qualify even if the camp is a "specialty" camp, such as a camp devoted to just soccer or computer:This is timely guidance for plan administrators. Often, there is a great deal of confusion on anything relating to the IRS! Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
The IRS has received many inquiries about whether the cost of a day camp that specializes in a particular activity, such as soccer or computers, may be an employment-related expense. To provide certainty for taxpayers and enhance administrability, the proposed regulations provide that the full amount paid for a day camp or similar program may be for the care of a qualifying individual although the camp specializes in a particular activity.
However, what about kindergarten? The IRS says:
The proposed regulations clarify the existing rule that expenses for programs at the level of kindergarten and above, however, are primarily for education and, therefore, are not employment-related expenses.
Consumer Directed Health Care: Successful or Not
This interesting article on the experiences of companies who implemented consumer directed health care plans shows generally that although companies claim success with the programs, enrollment is generally low. Specifically:
- Less than 0.5% (about 170) of Microsoft Corp.'s 41,000 U.S. employees enrolled in an HSA-based plan that went into effect last January.
- At the 1,000 employee law firm of Preston Gates & Ellis, about 6% of the company's employees enrolled for the 2005 plan year. Enrollment for 2006, however, nearly doubled to 11%, and 96% of those who enrolled in 2005 stuck with the plan.
- SkyWest, Inc., the parent company of SkyWest Airlines, is in its second year with an HSA-based option. Of the 5,500 employees who have health coverage through the company, about 850 are enrolled in the HDHP - up from about 500 in 2005.
So what does this all mean? My sense is that employers are engaged in significant communication strategies to promote these plans. In addition, enrollment is generally low. However, as plan costs continue to skyrocket and these are passed along to employees, we'll likely see more enrolling after other employees have kicked the tires and worked out the kinks before them. This reminds me of enrollment in Section 125 plans - typically low enrollment.Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Fourth of July Holiday Practices
This is one of those years when companies have to consider their options when planning the Fourth of July Holiday. Since the holiday falls on a Tuesday this year, some employers will be giving Monday and Tuesday off, while others will be giving only Tuesday off. This survey from my buddies at HRNY (the SHRM Chapter in New York City) shows that:
- 45.9 percent of respondents will give both Monday and Tuesday off
- 54.1 percent of respondents will be giving just Tuesday off
So, let me guess how many people required to work on Monday will really be working hard.....
The results of the HRNY Fourth of July Holiday Survey can also be found on their website.Posted By Diane Pfadenhauer In Compensation & Benefits , Policies & Procedures , Trends | Permalink
Automatic 401(k) Enrollment Increases Participation
According to a recent Hewitt survey, we are now beginning to see the effects of automatic 401(k) enrollment. In 2004, "participation by workers who had less than a year on the job rose to nearly 36 percent in 2005 from 30 percent in 2004. It attributed the increase to more companies automatically enrolling newcomers."
Despite this increase in enrollment, the survey tells us some other interesting points about 401(k) enrollment. First, about 22% of participants don't even contribute enough to obtain an employer match. Only about 30% contribute just enough to obtain the match.
In addition, here were the average 401(k) balances, for various age groups: those 20-29 had saved an average of $10,640, those age 30-39 had $39,470, those 40-49 had $86,990 those 50-59 had $126,980, and those 60 and older had $108,950. I suppose that this must also be influenced by employee tenure - those with their employers longer are likely to have saved more. Even still, better start saving!Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Health Benefits Planning: Now This Makes Sense
Some companies have begun to eliminate or reduce co-payments for prescriptions drugs for chronic ailments in their health plans. According to this article in the Boston Globe:
"Right now, this country's number-one approach to the high cost of healthcare is to make employees pay more... but cost sharing is a blunt instrument and the evidence actually shows that if you make people with chronic illnesses pay more, they stop buying the lifesaving things they need and companies wind up paying more."
"Concerned about escalating health insurance premiums, Marriott International Inc. began eliminating co-payments on generic drugs for workers with chronic conditions such as asthma, diabetes, and heart disease last year. The benefit, for 75,000 US employees and their dependents, includes a 50 percent cut in co-payments for brand-name drugs."
It is not uncommon for someone who is fully insured with a chronic condition to take a half a dozen prescriptions. At $20 each and a spouse and children, all of these prescriptions add up. When money is tight, people are less likely to fill a prescription. Thankfully, at least some companies understand that a few bottles of statins cost far less than a quadruple bypass.Posted By Diane Pfadenhauer In Compensation & Benefits , Trends | Permalink
Light Up and Find a New Job
Later this year Scott's Miracle Grow will join the many employers attempting to discourage its employees from smoking. However, unlike most employers who focus on positive reinforcement or at the most charge smokers more for health insurance, Scott's is going a bit farther. According to this article:
"In October, the company will begin randomly testing employees and giving pink slips to those who test positive for nicotine. The company announced the ultimatum in November, saying it was giving employees a year to quit, and offered to help with smoking-cessation programs. Scott's officials say it's part of a larger effort to help their employees become healthier. "
"Our company cares deeply about our work force and has a broad vision for promoting employee wellness. That's why we built a $5 million on-site fitness facility and offer a variety of programs aimed at motivating people to eat well, exercise regularly and eliminate unhealthy habits like smoking," said Scott's spokeswoman Su Lok.
While there is no law in Ohio, where Scott's is based, that would prohibit an employer for terminating an employee because her or she smokes, just don't try this in New York.Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Sample Amendment for Roth Elective Deferrals
The IRS recently issued a sample Roth amendment for 401(k) plans In other words, if an employer wishes to allow participants to make Roth elective deferrals in their 401(k) plans and, therefore, amend their plan accordingly, this will serve as an acceptable amendment for your plan.Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
HIPAA's Notice of Privacy Practices - It's the 3 Year Anniversary for Most of Us
I've gotten several inquiries lately about what some perceive to be a "new" HIPAA notice which was to be distributed to plan participants as of April 14th of this year. Everyone take a deep breath. All we are talking about here is the requirement that all plan participants must be notified at least once every three years with the privacy notice or with information on how to obtain the notice. Assuming you already did this three years ago (or two years ago for smaller plans), it's just time to reissue the notice (or next year for those smaller plans).
Generally, the HIPAA Privacy Notice gives plan participants information about how the plan will deal with protected health information.
Here's the general rule:
Covered entities are required to provide a notice in plain language that describes:
1. How the covered entity may use and disclose protected health information about an individual.
2. The individual's rights with respect to the information and how the individual may exercise these rights, including how the individual may complain to the covered entity.
3. The covered entity's legal duties with respect to the information, including a statement that the covered entity is required by law to maintain the privacy of protected health information.
4. Whom individuals can contact for further information about the covered entity's privacy policies.
5. The notice must include an effective date.
Providing the Notice:
1. A covered entity must make its notice available to any person who asks for it.
2. A covered entity must prominently post and make available its notice on any website it maintains that provides information about its customer services or benefits.
3. Health Plans must also:
- Provide the notice to individuals then covered by the plan no later than April 14, 2003 (April 14, 2004, for small health plans) and to new enrollees at the time of enrollment.
- Provide a revised notice to individuals then covered by the plan within 60 days of a material revision.
- Notify individuals then covered by the plan of the availability of and how to obtain the notice at least once every three years.
A covered entity may e-mail the notice to an individual if the individual agrees to receive an electronic notice.
So, how should remind ourselves to do this every three years? Why not just send out these materials with open enrollment materials every year? For more information, you can access this publication on the Department of Health and Human Services Website. For their HIPAA page, go here.Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
New State Laws Requiring Continued Coverage for Young Adults on Mom & Dad's Health Insurance
According to yesterday's WSJ, a growing number of states are now requiring plans to increase the age of dependent children covered by health insurance plans. It used to be that eligibility for dependent children ended at 19, or sometimes 23 or so for full time college students. Some of these laws require coverage up to the age of 30. The reason - according to the Kaiser Family Foundation, adults between the ages of 19 and 34 are the fastest growing group of uninsured.
Here are some of the details:
- New Jersey - effective this Monday; a dependent may be covered until age 30, as long as he/she has no dependents.
- Colorado - effective in January, 2006; under certain conditions children can be covered to age 25 even if not enrolled in an educational institution
- New Mexico - Allows coverage to age 25
- Utah - Allows coverage to age 24
- Maine - a Bill is pending that would allow coverage to age 24 if the child has a mental or physical disability that prevents them from being enrolled in a post-secondary institution
- New Hampshire - Similar legislation as Maine is pending for children of any age who are mentally or physically incapable of earning a living.
Public v. Private Pension Divide
Today's Newsday has several interesting articles covering the growing divide between public sector and private sector pensions and planning for retirement. Aside from the typical sensationalistic media hype that portrays "poor" public sector workers being compared to their "rich" private sector counterparts, the articles show the growing disparity between the two groups in terms of pension benefits. According to the article: "...the gap between public and private employees is widening as American corporations scramble to cut back or eliminate traditional pension plans. Only about one of every five private sector employees still has one, and every month more major U.S. corporations announce the end of their plans. But similar sacrifices haven't been seen in the public sector: 90 percent of the nation's government workers are covered by a traditional pension plan as of 1998, the most recent figures available.... By one estimate, the average public pension in New York State offers more than twice the payout that private pensions do."
A few other interesting tidbits:
¬?When a private sector pension goes belly-up, the PBGC steps in and provides the benefits - typically a much smaller amount than the original pension. When the public sector pension runs out of money, it is typically tax increases that fund the deficit.
¬?401(k) plans and other defined contribution plans found in the private sector don't have any guarantees.
¬?"In New York municipal workers in the state pension system retiring in 2004 after 35 to 39 years of employment collected more than $44,000 a year - or 74 percent of their final average salaries - from their pensions alone. A typical private pension, coupled with Social Security, replaces no more than 67 percent of salary. Police and firefighters pulled in an average of nearly $78,000, also 74 percent of their final average salaries. And teachers collected nearly $67,500, or 76 percent of their final average salary, if they worked at least 35 years in the system, according to the teachers' pension plan report for the year ending June 2005."
¬?Public employees contribute relatively little. Only workers hired after July 1976 contribute anything to their pensions: 3 percent of wages for their first 10 years on the job. And they get an added bonus: Public-sector retirees pay no state or local income tax on their pensions. Their private-sector peers get a $20,000 annual exemption from taxes.
¬?According to the Bureau of Labor Statistics the number of private sector employees who participate in a traditional pension fell from 28% in 1990 to 19% in 2003. Approximately 90% of public sector employees participate in traditional pension plans.
Seems to me that we should be looking at retirement planning differently. Everyone should be expected to contribute something to their own retirements and there needs to be a more equitable system. The article seems to portray "rich" private sector employees with seemingly lofty salaries in their working years compared to the "sacrifices" in salary that public sector employees have made. Here on Long Island it is not at all uncommon for some public sector employees to make well above six-figures. There are countless other private sector workers all over who are not pulling in six figures - from retail, to non-profit, etc. Having said all of that, let's not get into the issues of health insurance and the millions of working uninsured....Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Ignoring the Need for Diversification in 401(k) Plans
There have been a few articles of late about the trend for employees to continue to over invest in company stock in their 401(k) plans. Notwithstanding what happened to Enron employees (you know.... put all of their retirement eggs into Enron stock and the company went belly up), the research shows that employees are still inclined to turn a blind eye to prudent investing principles and place too much emphasis on company stock. According to one article:
"In a 2005 report on 401(k) plans by Hewitt Associates that looked at more than 2.5 million eligible employees, company stock was the single largest holding for the average participant. Large U.S. equity funds came in second... Plan participants held an average of 26.5 percent company stock in 2005, with just over a quarter of the participants holding half or more of the total in their employers' shares...[and] 28 percent of participants 60 or older held at least half their plan balances in company stock - at a time when experts strongly urge diversification against risk as workers approach retirement."
Some of this may be due to the fact that more companies used to match in company stock. My sense, however, is that there are a few things going on here. There is a certain amount of blind loyalty that employees have to their employers - a sense of doubt or disbelief that something could go wrong. In addition, I also believe that employees think that because they are insiders, they "know" more about the company than the average investor on the street. The seeming knowledge makes them tend to invest more in company stock. How's that for my bit of investor psychology? In any event, perhaps we should be doing more to educate employees about prudent diversification in investing.Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Baby Boomers Overwhelmed by Elder Care: Are Companies Doing Enough to Assist?
Only six percent of employers have written policies on elder care, according to a recent New York Times article. The result is increased absenteeism, increased workday distractions and adverse effects on the health of employees who are navigating the difficult minefield of trying to care for elderly parents.
The article further notes that those companies that do offer some sort of assistance use programs modeled after child care or offer programs that are low cost such as referrals to lists of providers and unpaid leave. Sadly, these do not effectively deal with the complexity of elderly care.
According to the article:
"The distinctions between child care and elder care have become apparent as the first of the 77 million baby boomers turn 60 and their parents live past 85, joining the fastest-growing segment of the population. The most obvious is that children's schedules are predictable ‚Äî a school holiday next Monday ‚Äî while elderly parents' needs ‚Äî a trip to the emergency room ‚Äî are crisis-driven. Also, children are raised at home; an elderly parent often lives far away. Guiding the decisions of an elderly parent also requires mastery of arcane legal, financial and medical matters."
So what will happen when the Baby Boomers age and the X and Y generations are saddled with the responsibility of caring for these aging parents? Hopefully, as a society we'll have figured this out.Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Rolling the Dice in an Early Retirement Incentive Plan
With the recent discussions in the news lately (and my recent post here) about GM's early retirement offer to 130,000 workers, the nuances of the design of these plans have come to light. Often, the criteria selected is somewhat akin to art more than science. In other words, the organization wants to create an incentive to get just the right number of people to willingly go, while at the same time keeping the employees with the skills that it needs. History is filled with stories of companies that designed such a plan and were astounded when too many employees opted in - the result being a brain drain that costs the company dearly.
Monday's print edition of the Wall Street Journal has at least part of the answer to the question of how to calculate the odds in buyout offers. According to the article:
"Companies must offer enough sweeteners to induce some employees - but not too many - to leave."
Thus, the challenge is to motivate the keepers to stay, avoid demoralizing staff, and avoid allegations of age discrimination. The article describes Electronic Data System's early retirement plan as enticing only a third of what was needed. Alternatively, Fedex' in 2003, was oversubscribed.
So what's the magic formula you ask? According to the article:
¬?How the plan is communicated
¬?Using sophisticate computer models to predict how many will go
¬?Creating a "hate to lose" list and creating incentives for those employees to stay
¬?Avoid multiple successive offers - this only puts your employees in a betting scenario - choosing to see whether to take the current offer or wait and hope that a better one comes along.
GM's Buyout Offer - Staggering Numbers
General Motors recently announced its plan to shed 30,000 workers. To achieve this goal, company is offering incentives to encourage employees to leave. Workers eligible to retire who leave now will get $35,000. Those who leave and sever all ties (i.e. forego retirement benefits) will get $140,000 if they have more than 10 years of service, $70,000 if less than 10 years of service. Doing the math, it seems staggering that a company could view spending BILLIONS of dollars as a way to save money over the long haul. This just goes to show the sheer size of GM, which lost over $10 billion last year alone. For more on this, go here.
This, by the way, is an effective use of an early retirement incentive program. For more on ERIP's, see my article on this subject here. It's a strategy that can be useful for organizations far smaller than GM.Posted By Diane Pfadenhauer In Compensation & Benefits , Corporate Turnaround , Retirement | Permalink
Time Off Policies Undergoing Change
Employers have begun to rethink their time off policies and the trend is away from specific days off for specific reasons and toward more of a universal time bank. Under the universal time back theory, employees are given a set number of days to use for any reason they wish. They no longer need to classify the time as vacation, sick or personal.
This article goes on to suggest that more employers should be looking at policies in connection with disasters and disruptions, noting that most companies have no policies on this subject. That notwithstanding, in the face of disasters many companies are very generous, continuing pay as long as they can.
One of the big problems here is the seemingly inflexibility of our nation's wage and hour laws. If we dock an exempt employee who works at any point during the week, the Department of Labor will have a fit!Posted By Diane Pfadenhauer In Compensation & Benefits , Policies & Procedures , Trends | Permalink
Auto Industry Benefit Changes
The automobile industry is finally waking up and adopting contribution schemes that most of us in the private sector have become familiar with over the years. Specifically:
-Chrysler will require contributions to health insurance on a sliding scale based upon income - "Top Chrysler executives, on average, will pay about $1,500 more per year for health insurance in 2007. Midlevel managers will pay about $450. Administrative employees will not pay anything additional in 2007, although their costs could go up in later years."
-Ford will now require employees who wish to cover their spouses to contribute more ($110/month) if their spouse is able to obtain coverage elsewhere. They are managing this on the honor system right now.
-According to a study done for Chrysler, Mercer Consulting noted that 19% of Fortune 500 companies use a sliding salary scale to determine health care contributions.
While the article quotes auto industry leaders as viewing themselves as "innovative," it seems to me that other industries and companies have been implementing these types of contribution systems for years.Posted By Diane Pfadenhauer In Compensation & Benefits , Trends | Permalink
Medicare Part D Creditable Coverage Notice to CMS Required by March 31st
This quick little article reminds us that for plan years that end in 2006, administrators must report, by March 31, 2006, to the Centers for Medicare and Medicaide Services (CMS) indicating whether the prescription coverage under the plan is creditable or not. In other words, is it iat least as generous as Medicare's?
The article also contains a list of the information required to be sent electronically.Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Light Up and Pay More for Health Insurance
"Meijer, Gannett, American Financial, Pepsi and General Mills are among the companies already charging or planning to charge smokers higher premiums. The amounts range from about $20 to $50 a month. "And, according to Hewitt Associates, the trend has become so popular that it will begin tracking it in its annual benefits survey! Some interesting smoking-related statistics:
- a general benefits survey of 950 U.S.-based employers last year showed that at least 41% used some form of financial incentives or penalties in their health care plans.
- at least 8% to 10% of the businesses probably aimed some of the incentives or penalties at smokers.
- The Centers for Disease Control and Prevention estimates $92 billion in lost wages annually in the United States from smokers who die prematurely. In addition, the economic cost of smoking includes $75.5 billion per year in direct health care costs.
Rethinking the Security of Your 401(k)
New York's Equal Benefits Law Struck Down
Last week New York City's "Equal Benefit Law" was struck down by the New York Court of Appeals. The law required any contractor with contracts in excess of $100,000 with a city agency to provide benefits to domestic partners, equal to those provided to spouses. The Court noted that the law was pre-empted by ERISA and another state statute relating to public works contracts.Posted By Diane Pfadenhauer In Compensation & Benefits , Employment Law , New York Law | Permalink
New York's Workers' Comp. Reform
Troy Rosasco, fellow Long Island blogger, and editor of the Disabled Worker Law Blog provides an interesting perspective on recent proposals to change New York's workers' compensation system. Troy, as a representative of the disabled and of workers injured on the job, as usual takes a strong stand against some of the changes. For human resources professionals, it's worth the read. All too often we hear the pro-employer side of the issues in our day to day readings. This is an interesting way to see what the issues are from the other side.Posted By Diane Pfadenhauer In Compensation & Benefits , New York Law 1 Comments | Permalink
IRS To Increase Scrutiny of Pensions
The IRS has announced that it is stepping up its scrutiny of retirement plans such as traditional pensions, 401(k)s and profit sharing plans. According to this article, small businesses are likely to be most out of compliance. In my travels working with small and large businesses alike, I've seen a host of issues:
- Outsourcing the plan administration and taking the attitude that "they handle it"
- Handling loans and hardship withdrawals incorrectly
- Placing respnsibility for internal administration in the hands of administrative employees not trained in this area
- Failing to provide required communications - all too often I've heard people say that the employees take care of it all on line
- Failing to follow the terms of the plan (sounds obvious but it happens ALL the time)
The moral of the story is that it doesn't matter how big or small you are. No matter who internally is charged with the administration of the plan, they ought to know what they are doing. Your accountant, your payroll service and your benefits consultant are NOT responsible for your plan.Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Public Pensions Rise While Private Pensions Fall
There has been a great deal of discussion of late regarding the trend in the private sector to scale back on pension and retirement offerings. This article discusses the opposite trend occurring in the public sector - an trend upward in pension and retirement benefits for public sector employees. According to the article:
- A December study of 85 big public pensions in all 50 states ‚Äî covering three-fourths of public employees nationwide ‚Äî found that governments continued to enhance benefit formulas, ease early retirement and improve other benefits from 2000 through 2004 despite states' financial problems. The increases were enacted on top of even larger benefit changes approved from 1996 to 2000. The study, conducted by the Wisconsin Legislature, is one of the most comprehensive on the issue.
- Average annual benefits for retired state and local workers grew 37% to $19,875 from 2000 to 2004, the most recent data available, according to the Census Bureau. The rising payments reflect the early retirement of baby boomers, who started to qualify for full benefits in 2001, at age 55, under most government pensions.
At the same time, "the portion of the private workforce enrolled in plans that pay monthly benefits for life has fallen from 39% in 1980 to 18% in 2004, according to the Employee Benefit Research Institute."
Seems to me that our elected representatives may be giving away the store, rather than dealing with reducing costs now. It's easier to give away something that will come due when you are not around to be responsible for it. On the other hand, private sector employees will continue to feel the consequences of reduced private sector retirement benefits as their tax dollars fund these lucrative public sector benefits.Posted By Diane Pfadenhauer In Compensation & Benefits , Retirement , Trends 1 Comments | Permalink
Only in New York...
At about the time we learned that the transit workers had rejected their proposed contract by a mere 7 votes, the news that Wall Street bonuses set a new record of $21.5 billion for 2005 appeared. What a contrast.Posted By Diane Pfadenhauer In Compensation & Benefits , Miscellaneous , Trends | Permalink
CEO Pay Rises 12% in 2005
The Christian Science Monitor published an article recently concerning the SEC's desire to promote more disclosure of CEO pay. The article begins with a host of extravagant perks available to CEO's. The bottom line, however, is that
"Such revelations of CEO compensation - a few among dozens of similar examples - have helped spur a drive to make corporate pay more transparent. [The SEC] is expected to require companies to provide more details about how they pay top honchos, including pumped-up pensions and weekend family picnics on Nantucket via the company jet....As a result, shareholders, watchdog groups, and publications such as Business Week should find it easier to tabulate a CEO's total compensation. And companies may also now have to give more details about what departing executives...will make once they leave."
From the perspective of employee engagement and communication, organizations need to be cognizant of the perception that these seemingly excessive perks and compensation packages can make. Employees who will average a 3.5% raise this year and pay more for their benefits do not want to hear about their bosses getting 12% increases and perks that are unrelated to performance.Posted By Diane Pfadenhauer In Compensation & Benefits , Trends | Permalink
More on Big Brother
As a follow up to my previous post on NYC monitoring blood sugar levels of diabetics, Julie Ferguson at the Workers Comp Insider discusses companies using carrot and stick approaches to "encourage" employee wellness. Citing a recent article in Forbes, she notes how several companies have begun to implement requirements including requiring annual wellness assessments (or requiring employees to pay the highest contribution levels), smoker surcharges, and mandating physical exams for employees. In addition "at least four states -- Alabama, Georgia, Kentucky and West Virginia -- now charge higher premiums to state employees who smoke and lower premiums to non-smokers, according to the National Conference of State Legislatures."
It will be interesting to see if this trend continues. While it is important for employers to control spiraling health care costs, at what point will employers cross the line and penalize employees for conditions which result from a genetic predisposition as opposed to a condition or disease which resulted solely from lifestyle choices? It will get really interesting...Posted By Diane Pfadenhauer In Compensation & Benefits , Trends | Permalink
IBM Continues Trend of Freezing Pensions
IBM just recently announced that it will freeze is defined benefit pension plan as of 2008 for all of its existing employees. IBM follows in a continuing trend by other seemingly healthy employers who have chosen to freeze their existing pension plans and focus on their 401(k) plans. These include NCR, Circuit City (in 2004), Hewlett Packard and Verizon (2005) and now IBM in 2006. According to this article, quoting research by Watson Wyatt, 89% of Fortune 100 companies offered traditional defined benefit plans in 1985. By 2001, however, that number had fallen to just over 50% by 2004.
I suspect we'll likely see this trend continue. As a result, there will be more pressure on HR professionals to provide greater educational resources to employees as they assume more of the risks associated with planning for their own retirements.Posted By Diane Pfadenhauer In Compensation & Benefits , Retirement , Trends | Permalink
Roth 401(k) Final Regulations Issued
Janell Grenier over at Benefits Blog notes that the Roth 401(k) Final Regulations have been issued. This website offers a ton of information on the Roth 401(k). It may be a bit sales oriented for some of your tastes, but if you are not inclined to read these regulations, start with Roth 401(k) Info.Posted By Diane Pfadenhauer In Compensation & Benefits 1 Comments | Permalink
New York Minimum Wage Increases
The minimum wage in New York State increased to $6.75/hour, effective January 1, 2006. It will increase to $7.15 on January 1, 2007. Now it's time to update that wage and hour poster. Now all of those poster companies that annoy you with emails, faxes, and telephone calls will be inundating you with messages telling you that you will go to jail if you don't buy the poster from them. To bad for them, you can get it here for FREE!Posted By Diane Pfadenhauer In Compensation & Benefits , Employment Law , New York Law | Permalink
Workers' Comp - How Do You Get Answers from the Employee's Doctor?
Our friends at Lynch Ryan had an interesting post last week addressing how to obtain information from an employee's doctor. We're not talking about doing something unethical here. All too often when there is a workers' compensation case and an employee is out, there is a great deal of confusion concerning whether and when the employee can return and whether there are any restrictions. This post provides great guidance on getting the answers an employer needs so that the employee's benefits are not disrupted. Well worth the read.Posted By Diane Pfadenhauer In Compensation & Benefits , Policies & Procedures | Permalink
New York's Spread of Hours Regulations
Bet you never even heard of it! Why? Because it's not found in any New York wage payment law. The regulation applies when an employer pays employees at or near the minimum wage Generally, the rule applies when:
- The employee's spread of hours' exceeds 10 hours (from the start of the day to the end of the day, including meal and break time).
- When the employee works a split shift in the workday with nonconsecutive work hours. Meal periods of one hour or less don't count to interrupt the continuity of the shift.
The employer is obligated to pay one hour of additional pay for each hour in excess of 10 hours and for each split shift. If both situations occur, the employee gets 2 hours additional pay. In other words, if the employee works 11 hours at NY's current minimum wage ($6.00 until January 2006 when it will go up to $6.75), it owes the employee 12 hours of pay. If those 11 hours were the result of a split shift, it would owe the employee 13 hours pay for those hours. These additional hours where the employee did not work are paid at the minimum wage.
So how does the employer get around this? They should pay $6.60/hour if their work schedules would result in the instance where one additional hour would be owed (spread of hours or split shift), or $7.20/hour in the instance where work schedules would result in 2 hours being owed.
For those of you who want to try to figure this out yourself, good luck! I actually can't even provide a link to the regulation as the state doesn't have it online!! But, it can be found here 12 N.Y.C.C.R. Sec. 142-2.4 (if you remember what an actual library is!).Posted By Diane Pfadenhauer In Compensation & Benefits , Employment Law , New York Law , Policies & Procedures | Permalink
Severance Pay Trends = Less
According to the outplacement firm, Lee Hecht Harrison, there is a continuing downward trend in the amount of severance pay provided by companies to laid off employees. According to the survey, discussed here,
- Packages with two or more weeks pay per year of service fell from 55 percent in 2001 to 51 percent this year among executives, still well above 37 percent in 1998.
- Packages among managers and functional staff declined from 40 percent to 38 percent this year, compared to just 29 percent in 1998.
- Thirty-three percent of administrative staff (secretarial and support staff) were given packages with two or more weeks this year, compared to 29 percent in 2001 and 23 percent in 1998.
- The percentage of companies giving less than one week severance pay per year of service increased. Such packages were given to 13 percent of executives this year, compared to 4 percent in 2001 and 6 percent in 1998. Sixteen percent of managers and functional staff received such packages, compared to 6 percent in 2001 and 7 percent in 1998 and 15 percent of administrative staff received such packages this year, compared to 9 percent in both 2001 and 1998.
- Forty-nine percent of companies offer severance to some part-time employees, up from 39 percent in 2001.
- Median minimum severance has remained relatively stable since 1998 at four weeks for senior executives and executives, three weeks for managers and functional staff and two weeks for administrative staff.
- Median maximum severance has increased to 52 weeks for senior executives and to 28 weeks for executives, both up from 26 weeks. Median maximum severance remained at 26 weeks for managers and functional staff and administrative staff.
Decreasing "Real" Wages
According to this article in the Christian Science Monitor, American workers, after inflation, earns 2.3% LESS than they did a year ago. Some of the reasons for wage stagnation, according to the article, can be attributed to:
- The downward pressure of global competition.
- The cost of benefits. Some employers have stopped offering health insurance, but those that do are spending more, and thus boosting overall compensation even though hourly wages aren't rising.
- Price-sensitive consumers. As energy costs rose, many companies didn't feel able to pass those costs along to customers. So they have to pay their oil bills by cutting costs elsewhere. Pay hikes get smaller.
- Government policies. Some researchers say a failure to crack down on illegal immigration - whether at the border or in the workplace - has depressed wages for the less skilled.
- Weak bargaining power. The decline of union membership in the private workforce has had a significant dampening effect on wages, some economists say.
As if it isn't hard enough to keep employees motivated, happy and committed. I noted here the impact that home heating costs will have on the average worker. Perhaps it's time to be thinking about other non-monetary ways to keep employees engaged.Posted By Diane Pfadenhauer In Compensation & Benefits , Trends | Permalink
2006 Benefit Plan Limits
The 2006 limits on benefit plan contributions and limits is available. Some changes for next year include:
- The FICA wage base will increase to $94,200
- The 401(k)/403(b) elective deferral limit will increase to $15,000
- The catch up contribution will increase to $5000
Thanks to Janell Grenier, who as usual, was the first to bring this to our attention. See her post on these and other amounts for next year here.Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Early Retirement Incentive Programs
When organizations are faced with the need to reduce their workforces, they often immediately think of layoffs. Early Retirement Incentive Programs (ERIP), however, are often a viable alternative to traditional layoffs and less disruptive to organizations. So, why don't people think of an ERIP more often? Well, when you put actuaries, plan administrators/fiduciaries and benefits lawyers in a room together, the results usually completely overwhelm anyone else there! So, my colleague, Heidi Hayden, and I have prepared this step-by-step guide which will serve as a road map for any organization considering any ERIP. Happy reading (it's a LONG one)!Posted By Diane Pfadenhauer In Compensation & Benefits , Employment Law , HR Strategy , Retirement | Permalink
High Deductible/Consumer Directed Health Plans
Today's print edition of the Wall Street Journal discusses the trend toward the new "consumer-directed health plans." As the open-enrollment season will be soon upon us, 26% of U.S. companies with 500 or more employees say they are likely to offer these high deductible plans (according to Mercer).
From an employee perspective these plans can drastically reduce premiums. Conversely, however, they will tend to require consumers to lay out potentially considerably more money every time they seek care. The potential impact of this is that the healthy who do not seek care will likely pay much less than the sick who must satisfy high deductibles before insurance kicks in. The incentive here is that it will encourage consumers to shop for health care bargains. Unfortunately, however, I don't suspect that the health care community has yet to embrace this idea. So, finding this information so that one can make an educated and informed decision about costs and quality will like require a change in some of the philosophies of our health care providers.Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Fuel Costs and Your Raise
With all the talk lately about surging fuel prices.... the next logical question whether the predicted 3.5% salary increase for next year will cover the increase in fuel prices. Let's take a look, according to this recent article:
"Heating a typical home with natural gas in colder parts of the country is now expected to cost $1,568 this winter, up 64 percent from $957 last year, according to estimates from the National Energy Assistance Directors' Association, which coordinates energy relief for lower-income families.
The news is not much better for homes using heating oil. This winter's heating bill could rise by nearly a third, to $1,666, from $1,263 last winter, the group said. Its forecasts are based on estimates made after Hurricane Katrina but before Rita."
The $50,000/year employee who gets a 3.5% raise can expect an extra $1,750 (or about $34/week) in his/her pocket before taxes. Less taxes (depending upon the location) he/she might end up with $20. The average employee is probably already spending an additional $20/week on gas for the car. So, it looks like the additional cost of heating homes this winter may come out of the holiday gift budget.Posted By Diane Pfadenhauer In Compensation & Benefits , Trends | Permalink
2006 Salary Increase Planning
- Salaried employees - 3.6%
- Executive employees - 3.8%
- Non-union hourly - 3.5%
Variable compensation will increase to approximately 11.4 % of payroll, up from 9.5% in 2004. The article further notes: "Cash-strapped companies, the Hewitt report notes, "are more often turning to [offering their best people] flexible work arrangements (52%), retention bonuses (41%), stock awards (30%), and part-time work options (30%)."
Moral of the story - now's the time to see about telecommuting. I read earlier today that gas prices will not return to their pre-hurricane levels for at least 6 months.Posted By Diane Pfadenhauer In Compensation & Benefits , Trends | Permalink
Stats for Benefits Planning
This is the time of year when employers are considering what to charge employees for health insurance. This article references a study recently released by the Bureau of Labor Statistics on the subject and provides an email where a summary of the study can be obtained. Some of the findings:
- Employee contributions averaged $68.96 a month for single coverage and $273.03 a month for family coverage.
- Employer contributions for single coverage averaged $252.22 a month, while employer contributions for family coverage averaged $575.77 a month.
- Twenty-one percent of employees participated in defined benefit retirement plans, and 42% participated in defined contribution plans.
- Paid leave was the most commonly provided employee benefit in the private sector. This includes paid holidays and vacations, which were available to 77% of employees nationwide. Paid jury leave also was common, available to 69% of workers. Forty-eight percent of private employers offered paid military leave benefits.
Cost of Family Coverage - Over $11K
USA Today noted that the cost of family health insurance has topped $11,000/year for the first time. They reference a survey from the Kaiser Family Foundation. I'd suggest that in some areas, that cost is even greater - here in NY, where medical costs are known to be notoriously high, I've seen annual premiums in the neighborhood of $15,000/year.
I was recently quoted in the Long Island Business News on the subject of employers paying employees to opt-out of their plans. Noting that it is cheaper to add a few thousand dollars to someone's pay than to pay in excess of $11,000 for health insurance, a few (particularly smaller) employers are jumping on the band-wagon. The problem with this approach, I noted, is that if you add a few thousand dollars to someone's pay who has the choice between two health plans, what do you do for the person who doesn't have that choice? Will an employee (let's say a single employee) who doesn't have a spouse who can provide coverage be offered the same cash incentive? Obviously this will result in the employee having no coverage - not an option I'd want to provide as the employer. Another problem with this approach is that in very short order the employee who got several thousand dollars added to his/her pay will quickly forget that it's because of health insurance. And, every time you give him/her a raise, you're adding to an already inflated base salary. I think there are other approaches, and this is not one I would advocate. Any other thoughts out there?Posted By Diane Pfadenhauer In Compensation & Benefits 1 Comments | Permalink
More "Back to School" on Employee Retirement Planning
As everyone returns to school and the fall gets underway, by this time employers have already begun to think about health plan costs for next year and retirement plan funding/contributions. The fall and end of the year are always a good time to educate employees about the value of their benefits and the need to save for their golden years. According to a Hewitt Associates survey (as referenced here in the Chicago Tribune):
"Nearly half of a group of 200,000 workers who left their jobs in 2004 cashed out a majority of their retirement plans rather than rolling them into other retirement accounts or leaving them parked with their former employers."
The article also noted, alarmingly, that those who cashed out weren't just young employees with low balances:
"...42 percent of workers in their 40's, along with 66 percent of workers in their 20's took the money and ran. Nearly three-quarters of people with plan balances of less than $10,000 took the money, but a third of employees with between $10,000 and $20,000 also cashed out."
Maybe we should be doing more regular education for employees to encourage them to save and if they do leave our employ, to roll over the money into either another qualified plan or an IRA.Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Medicare Part D - What Employers Need to Do
There are a number of requirements that employers must comply with under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (or MMA, for short). The MMA, among other things, provides for presciption drug benefits (Medicare Part D) for retirees beginning January 1, 2006. Specifically there are a number of notification requirements that employers must meet:
- By September 30, employers who want to receive a federal subsidy for their plan drug costs, must file a request.
- The Part D coverage will be available for a premium of $35/month. Like other Medicare programs, individuals who have alternative "creditiable" coverage (such as some employer health plans) may choose to not enroll in Part D without a penalty. According to the Centers for Medicaid and Medicare Services (CMS), employers must notify, by November 15, 2005, all Part D eligible participants (including employees, retirees and spouses) regarding whether their plan is "creditable coverage" under Part D. November 15th is also the beginning of the open enrollment period for Part D.
Happy Birthday Social Security
- The Social Security trust fund currently holds about $1.7 Trillion in special treasury bonds.
- The annual cost of Social Security benefits represents 4.3 percent of Gross Domestic Product (GDP) today and is projected to rise to 6.4 percent of GDP in 2079
- Medicare's annual costs are currently 2.6 percent of GDP, or about 60 percent of Social Security's. They are now projected to surpass Social Security expenditures in 2024 and reach almost 14 percent of GDP in 2079
- In December 2004, 39.7 million people were receiving OASI benefits, 7.9 million were receiving DI benefits, and 41.7 million were covered under Medicare
Executive Pay for Performance
A recent article in the San Francisco Business Times tells us that executive pay is getting closer and closer to reflecting actual job performance. The article identifies that there is a trend to reward upside performance, but alas, it is not as clear with regard to downside performance. In other words, some execs see the upside in their compensation when they do well, but not the down side when they do poorly. Here are some interesting trends identified in the article on executive pay with respect to stock options:
"Nationally, corporate boards are moving away from stock options as compensation, especially with the expensing of options kicking in next year for most companies. These companies are opting for restricted stock grants or comparable performance units, tying pay closer to performance."
"With options expensing imminent, the next year or two will determine how much progress corporate America will make in tying pay to performance in the corner office."
I think this whole notion of expensing stock options which is coming around the bend has a lot of people confused. I think the old says of doling out stock options without regard to measurable performance (and a corresponding downside for failure to perform) may be nearing an end. As organizations want to continue to reward their executives with ownership, restricted stock appears to be the new trend.Posted By Diane Pfadenhauer In Compensation & Benefits , Trends | Permalink
Cost to Benefit Plans of the Uninsured
The next time you are shopping for your company's health insurance plan, consider this, as reported by USA Today:
"Providing health care for the uninsured increases the annual cost of insurance premiums for the average worker by $341 and for the average family by $922."
Yikes!Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
GM's Benefits Burden
General Motors has announced its intent to reduce it workforce by 25,000 by 2008. Why? The cost of health care and pensions. An article here, notes that the cost of benefits amounts to approximately $1500 per car. According to the article:
"The problems go well beyond GM and the other automakers: Some of the nation's steelmakers, airlines, and old-line manufacturers - and even some municipalities - are also carrying large "legacy costs" - and may face similar layoff decisions."
This image from the article tells all: View this photo, and references the Survey of Employer-Sponsored Health Plans by Mercer Human Resources Consulting (available here) and Data on Private Sector Employers from the Employee Benefit Research Institute.Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
United's Pension Default
There's been a great deal of coverage on the recent dumping of United's Pension Plan onto the Pension Benefit Guaranty Corporporation (or the American people...). An interesting opinion in the Wall Street Journal last week (registration required) provided some interesting perspective on the issue (whether or not you agree with some of the points). The opinion notes the following:
- The PBGC is already in hot water - to the tune of $23.3 Billion - that means it's obligations exceed its assets by that much! So where is the $23B coming from? You and me!
- If the rest of the airline industry follows, the obligation for that industry alone could exceed $40 Billion.
- The automobile industry alone is underfunded by somewhere between $45 and $50 Billion. Delphi Corporation, a recent GM spinoff, has a potential underfunded liability of close to $5 Billion.
- Elaine Chao estimates that the unfunded liability in private sector pensions is about $450 Billion! The 1980's savings and loan bailout was just a mere $200 billion.
So what does all of this mean? Will employers be more or less likely to offer defined benefit pension plans? Who knows. If employers are more able to dump them on the PBGC when times get tough, they may be more likely to keep them. But, if they can't or the PBGC premiums go through the roof (which they most likely will), employers will likely terminate their plans and adopt defined contribution plans where the employees bear all the risk. Bottom line, we all pay either way.Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Trend to Reduce Choices in 401k Plans
"Employers hope that by limiting the number of options, they are making the selection process less intimidating."
I've found that, all too often, employees are confused about the options available to them, despite the genuine efforts of employers and plan sponsors to provide education. Obviously, errors or poor investment decisions can have a significant adverse effect on account balances in the long run. Perhaps simplifying things a bit will help our employees make the right choices for their circumstances.Posted By Diane Pfadenhauer In Compensation & Benefits 2 Comments | Permalink
College Grad Salaries Expected to Rise
A recent article on CNN.com tells us that according to the National Association of Colleges and Employers, college graduate salaries are expected to rise this year and that employers will likely hire more graduates. Here's what salaries are up:
- Aerospace and aeronautical engineering majors - up 9%
- Marketing majors - up 6%
- Economics and finance majors - up 5.1%
- Chemical, mechanical and civil engineers - up 4%
- Liberal Arts majors - up 4.2%
The article notes that some, however, are down:
- Computer engineering jobs - down 2%
- Information science jobs - down 0.8%
With the market down to its lowest point since the election, it will be interesting to see if this trend holds up. Let's hope it's not like some of the other downturns in the economy - offers extended and then pulled out from under the candidates like a rug.Posted By Diane Pfadenhauer In Compensation & Benefits , Trends | Permalink
Insufficient Retirement Savings
Interesting little article in USA Today last week regarding retirement savings - or lack of. The article cites an annual survey by the Employee Benefits Research Institute (a great organization, by the way) that demonstrates a continued disconnect between what people believe they need for retirement and what they actually have saved. For example, the survey noted the following for respondents - most of whom were over 45:
- 52% had less than $25,000 put away
- 13% had $25,000 to $49,999 put away
- 11% had $50,000 to $99,999 saved, and
- 21% had $100,000 or more put away
Despite what I view as pretty dismal numbers, 65% of respondents stated that they were "very confident" or "somewhat confident" about being able to fund their retirements. With what, I ask?
EBRI sponsors a website called the Ballpark Estimate that you can use to calculate the amount of money needed for retirement. I went there and played around with some of the tools. That 45 year old with $25,000 in the bank, needs to be putting aside a lot more money every year. If I was a benefits manager doing a presentation to employees on their 401(k), I'd be talking about these tools.Posted By Diane Pfadenhauer In Compensation & Benefits , Trends | Permalink
Factors Influencing Rise in Health Care Costs
I've always been a follower of the health care industry, particularly as it relates to an employer managing health care costs and trying to stay ahead of the seemingly exponential rise in costs year after year. This interesting blog - Managed Care Matters - seems to have some fairly interesting stuff on what carriers and insurers are up to and what's going on in the industry. A recent post, noted that:
"technology and the increasing income of the US population are the top drivers of health care costs. The two are interrelated, as health care is a "luxury good" as defined by economists, so the more income one has, the more "luxury" one can afford.
The post goes on to explain the link between technology and health care costs and uses the MRI as an example:
"Originally approved by HHS for very limited use in a handful of settings, MRIs were quickly found to have much broader application than assumed in the original license (American creativity at its best). Physicians, manufacturers, and MRI owners were able to fill the available time slots with patients so quickly that a new, and quite large, market for advanced diagnostic imaging was created within a very short time. This is but one example of the ability of technology and technologists to find lots of new billing opportunities for their new creations."
I recall working for an MRI manufacture 20 or so years ago. We'd routinely sell these multi-million dollar pieces of equipment to physician practice groups who would then refer their patients to their very own MRI. Nice gig.Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Role of Health Benefits in Employer Compensation Strategy
The Labor Prof Bog last week provided a link to a study published by Harvard University which discusses the role of health benefits in an employer's compensation strategy. WARNING: the article is extremely detailed and, shall we say, quite academic. It does, however, promote some very interesting thought-provoking discussion. Specifically, it makes one think about the harsh reality of benefits planning (which I will describe in a less-than-academic fashion).
- It makes most sense for the employer, from a financial perspective, to design a plan that encourages employees to select the most restrictive, yet least costly, design for the employer.
- With regard to adverse selection, the employer needs to design the plan to ensure that the employees who are most likely going to need the most generous plan (um... that would be the sick and unhealthy folks) either pay the most for it or end up in the plan that has restricted freedom and, therefore, the lowest cost for employers. Nice.
- When employers are designing their plans, the bucket of cash available needs to be looked at in the context of all other monies that the employer spends on employees. Way back in the old days when I first got into HR, we could expect 10% raises, on average, for employees and health care benefits were increasing at 5% per year. Today, we have 3% raises and health care is increasing at 25% per year. In other words, if you do the math, the increase for health insurance most likely exceeds the increase for raises (dollar for dollar). If we add escalating (try "skyrocketing") pension contributions over the past few years as a result of market performance and low interest rates, the situation for employers is down right ugly. In the public sector, this gets passed along as tax increases. In the private sector, there is really no place to pass it along to. As a result, there are continuous cut-backs and scaling back of overall compensation packages.
Advocating 401(k) Automatic Enrollment
The Washing D.C. based Brookings Institute has a recent article advocating the use of automatic 401(k) enrollment. The article notes that automatic enrollment would solve the problem of minimal participation in plans (particularly among lower level employees, I would add). The authors suggest automatically enrolling employees with a 3% contribution and allowing them to take the step to opt out if they so choose. The authors liken the concept of automatic enrollment in a 401(k) to automatic enrollment in a define benefit pension plan. The article further cites 4 building blocks of automatic enrollment:
- automatic enrollment (3%) with an opt out feature
- automatic escalation when employees are given raises
- automatic investment
- automatic rebalancing of accounts
The article further notes that enrollment jumps from an average 15% for low wage earners to 80% with automatic enrollment and that with automatic escalation, average contributions rose from 4.4% pf pay to 10.6 % of pay. I previously noted in a previous post regarding the new IRS regulations which permit automatic rollover of plan balance upon termination.Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Roth and Your 401(k)
As of next year (January 1, 2006) employers can offer their employees Roth-style features in their 401(k) plans. Essentially, employees would be able to contribute after-tax earnings into their employer 401(k) and the earnings will accumulate tax-free. Workers would be able to withdraw the money tax-free as long as they held the account for 5 years or are at least 59 1/2. This is unlike traditional 401(k) investments which are taxable as ordinary income when withdrawn.
The Roth 401k website (available here) has a slew of articles on the Roth 401(k) as well as links to the proposed regulations IRS issued earlier this month and Congressional committee reports.Posted By Diane Pfadenhauer In Compensation & Benefits 1 Comments | Permalink
Working Without Health Benefits
Newsday recently reported and eye-opening statistic:
According to the US Census, 74% of the nation's 45 million uninsured people were working - generally full time, year round, in small businesses.
The article discusses the pitfalls of trying to get insurance on your own and offers some advice. The interesting observation, however, is the reality that fewer and fewer employees can expect health insurance from their employers. While those who work for large employers generally do not have to worry, it's those who work for small employers, and those who are college students and have jobs where no insurance is offered who may have to go it alone.Posted By Diane Pfadenhauer In Compensation & Benefits , Trends | Permalink
What Happens When You Don't Carry Workers' Compensation Insurance
The Workers Comp Insider describes the penalty for failing to carry workers' compensation insurance required by law. They have been following the Station Night Club fire which occured a year or so ago in Rhode Island. Seems the owners, perhaps as a cost cutting move, were not carrying workers' comp. insurance as required. They note:
"...the workers comp situation is starkly clear: Judge Bruce Q. Morin has determined that the nightclub's owners, brothers Michael and Jeffrey Derderian, and their company, Derco LLC, are "jointly and individually" liable for the workers' compensation benefits of at least four employees who died in the fire. "
For more, view the post here. For more about the fire and its aftermath, visit the Station Family Fund at www.stationfamilyfund.org - it's dedicated to helping victims of the fire. If nothing else, it will remind us that although the fire occurred a while ago and has largely disappeared from most of our memories, there are still many who continue to suffer and need assistance.Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Automatic Rollover Rules (IRS Notice 2005-5)
As previously discussed here, there are new rules which govern a retirement plan's decision to require mandatory cash-out of a participant's assets if they are less that $5,000 at their separation from employment. This rule applies to pension, profit sharing, 401(k) and other qualified plans. The recently issued IRS Notice 2005-5 identifies which plan distributions are impacted and identifies considerations for plan administrators in deciding whether to amend their plans to require mandatory cash-out. Generally, according to Seyfarth Shaw in a recent Management Alert,
"With some exceptions, plans that provide mandatory distributions in excess of $1,000 must adopt a good faith plan amendment implementing the automatic rollover rule by the end of the first plan year ending on or after March 28, 2005."
They further note that the IRS has provided a sample plan amendment for this purpose.Posted By Diane Pfadenhauer In Compensation & Benefits , Employment Law | Permalink
(Not So) New COBRA Notice Requirements
So why am I writing about the "new" COBRA notice requirements which aren't so new any more? I'm finding that a fair number of people don't know what I'm talking about when I mention this. For those who don't, here's the story....
In May of last year, the DOL issued final regulations under COBRA. Calendar year plans are required to comply by January 1, 2005. Generally, the new regulations set forth the details of specific notice requirements that plan administrators are to provide to qualified beneficiaries, that employers are required to provide to plan administrators and that qualified beneficiaries are required to provide to the plan administrator. They specifically identify two additional notices that are now required and provide two model notices which can be adopted for your particular plan. Old model notices are no longer compliant.
Many employers who use outside third party administrators may be thinking they have nothing to do, but these new regulations will require changes to SPD and provides detail on the requirements of employers to notify plan administrators or third party COBRA administrator when they learn of qualifying events. For the real nitty gritty, go right to the regulations. For a more user-friendly explanation, go here and here. For MS Word version of the two Model Notices (which obviously must be tailored to the organization) go here. I'll be doing a seminar on these regulations for LISTnet on Long Island in February.Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
The Kaiser Family Foundation hosts this website (www.statehealthfacts.org) which contains free, up-to-date, and easy-to-use health data on all 50 states. It provides data on more than 450 health topics and is linked to both the Kaiser Family Foundation website (www.kff.org) and KaiserNetwork.org (www.kaisernetwork.org). For those engaged in benefits planning for their organizations, the Kaiser Foundation's surveys have provided a wealth of valuable information for planning purposes. This site provides even more information on such subjects as demographics and the economy, health coverage and uninsured, Medicaid and Medicare, health costs and budgets, managed care and health insurance, minority and women's health and HIV/AIDS.Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
IRS Retirement Plan Limits
For those of you who missed the IRS announcement of retirement plan limits for 2005 which was released in October, here it is. Briefly, here are some of the new limits:
- the Social Security wage base increases from $87,900 to $90,000.
- the limitation for highly compensated employees increases to $95,000
- the 401k, 403b, and 457b contribution limits increase from $13,000 to $14,000, with a catch-up contribution increase for those over 50 of $4,000.
For more on the world of benefits, see Janell Grenier's fabulous benefits blog. You will find more than you can ever imagine you ever needed in the world of benefits. The link to her blog also appears on the right side of this page.Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Automatic IRA Rollover Requirements
In March of this year, all qualified plans will need to comply with mandatory rollover requirements. If a former employee's benefit in the plan is more than $1000 and subject to the plan's cash out provision, the plan must roll over the benefit into an IRA selected by the plan fiduciary unless the employee elects direct payment or directs that the benefit be rolled over to the IRA of his/her choice. Here is a simple article on this subject to get you started. This one will help as well.
US Companies Lose $150 Billion Per Year When Sick Employees Come to Work
According to Harvard Business Review, US companies lose $150 billion per year when sick employees come to work. They call this "preenteeism" and the loss amounts to reduced productivity of the the sick employee at the workplace. Many of these illnesses are minor - asthma, colds, headaches. Some are even more debilitating such as arthritis, diabetes, migraines, etc. What is interesting is that the study identifies that companies have been able to demonstrate increases in overall productivity when they invest (or SPEND MONEY) to provide employees with the proper medications and treatment. For example, the article cites the case of Pitney-Bowes who in 2001 sought to REDUCE health care costs. They did this by REDUCING co-payments for allergy and diabetes drugs. They found that the direct costs of treating these invididuals actually FELL 10%. Why? Because patients were more likely to take the more affordable drugs more regularly. Here's the problem - aren't we all now trying to sell our employees on this new "self directed health care" nonsense. So we'll give them big deductibles so they make intelligent health care decisions. Hmmm. I think HBR is on to something. Let's check back in a few years and see where our health care costs have gone. We may be ultimately lowering our short term costs yet have sicker employees and a corresponding drop in productivity.Posted By Diane Pfadenhauer In Compensation & Benefits , Policies & Procedures | Permalink
Reducing Workers' Compensation Costs
A recent article by the American Society of Safety Engineers demonstrates how proactive steps to promote workplace safety and reduce workers' compensation costs can have a significant positive effect on the bottom line. This isn't just fluff. The article cited a study by Liberty Mutual that found that every $1 invested in workplace safety results in a $3 savings. Human Resources professionals are often involved in workers' compensation management either in conjuction with safety and health professionals or are responsible for the entire process. In service environments, many organizations give no attention to safety or workers' compensation - they view this insurance as a necessary evil that cannot be managed. It's required by statute, so just find a broker to get it for you. With such an approach, employers are missing the opportunity to impact significantly bottom line expenses, promote productivity, reduce absenteeism and positively influence morale. Such an approach will not only reduce accidents and expenses, but will get employees back to work and enable the organization to determine whether such injuries are genuine or suspect.Posted By Diane Pfadenhauer In Compensation & Benefits , Policies & Procedures | Permalink
2005 Projected Increases for Employer Health Plans
A recent survey by Aon Corporation projects a 13.5 increase in health plan costs for employers in 2005. The survey results, available here, detail the breakdown of projected increases for HMO's, PPO's, POS's and indemnity plans. The survey also indicates projected increases for Consumer Directed Health Plans (CDHP's). Since it is projected that President Bush will promote CDHP's during his second term, we will likely see a change in participant spending patterns as more of the costs of health care are borne by plan participants. An interesting concern is whether participants will avoid medical care when the costs will initially come out of thier pockets, the result being more serious illnesses which could have been prevented earlier. Ultimately this could result in greater costs for insurers as they pick up the tab for more serious illnesses that develop as a result of a participant hesitating to seek medical care in the early stages of an illness. Only time will tell.Posted By Diane Pfadenhauer In Compensation & Benefits | Permalink
Guidance for Finding Missing Plan Participants
How many times have plan administrators been faced with the prospect of dealing with seemingly lost plan participants when terminating a plan? The US Department of Labor recently issued guidance for fiduciaries of terminated defined contribution plans who cannot find all plan participants to make final distributions. If a fiduciary is unable to locate a plan participant, the administrator may distribute the account according to the guidelines set forth in the DOL's bulletin. The bulletin sets forth several steps that a fiduciary can take to locate plan participants. Reasonable expenses associated with these search efforts may be charged to the participant accounts. These include:
- using certified mail,
- checking records of related employer plans,
- contacting a designated beneficiary and asking that beneficiary to forward information to the participant,
- using a government letter-forwarding service, or,
- using internet search tools or credit reporting agencies.
For further information, this bulletin is available here.Posted By Diane Pfadenhauer In Compensation & Benefits , Corporate Turnaround , Policies & Procedures | Permalink
Companies Sue Retirees to Avoid Honoring Retiree Health Care Obligations
A recent front page article in the Wall Street Journal (Wednesday, November 10 - registration required), reported recent attempts by companies to avoid their obligations to provide retiree health coverage. While this concept is nothing new, the article described new, unique and troubling lengths that companies will go to in order to avoid paying for retiree health benefits, seemingly leaving retirees in the dust.
The article describes employers, such as Rexam, Inc., which had previously agreed in labor contracts to provide retirees with lifetime health benefits. The company has taken the affirmative step of suing retirees in court to avoid continuing to provide benefits. By pre-emptively suing retirees, rather than cutting off benefits and waiting for retirees to sue, the company has the opportunity to choose a forum it believes is most favorable to it. They, and other employers, have alleged that "lifetime" benefits really doesn't mean the life of the employee. Instead, they assert, it means the life of the contract, which probably expired years ago. According to the article, retirees who have gone to the Department of Labor have found little help as the Department does not view them as their constituents. The unions' only recourse is to file suits in court on behalf of retirees, as they are prohibited from filing unfair labor practice charges and cannot strike on behalf of retirees. This leaves the retirees with canceled health benefits and a long wait on the court house steps for a remedy which may never come.
It seems that the Circuit courts are split on this issue often choosing one of two options - to favor the language in the collective bargaining agreement (and interpreting it to favor the employee), or to favor the language in the plan document which generally allows an employer to modify a plan under certain circumstances. Only time will tell what the outcome of all of this will be, but for many of these retirees, it may be too late by then. One can only imagine what present employees of these companies are thinking and the effect on morale.
Airlines Seek to Cut Pay and Benefits Again
The Wall Street Journal recently reported that USAirways was seeking to reject certain labor contracts. As many know, the airline is in bankruptcy. It further wishes to reduce health and retirement benefits. You can view the article here. The unions have already taken a 21% pay cut and this rejection of the contracts would most likely result in further reductions in pay and benefits. While these cuts are presumably designed to enable the carrier to tansition from a traditional carrier to a low cost airline, the impact on employees is obviously dramatic. One can only hope that the airline is considering not only the strategic business implications of these changes on the bottom line, but also the strategic people implications of these changes. How loyal or demoralized will these employees be? Conversely, without these reductions can the airline survive? Only the future will tell. In the mean time, the employees continue to take significant blows as the airline transforms its business strategy.Posted By Diane Pfadenhauer In Compensation & Benefits , Corporate Turnaround , HR Strategy , Labor Relations | Permalink