Month: September 2003

“Heard Off the Street: The pension time bomb may explode, or perhaps it’s just a dud“: the Pittsburgh Post-Gazette reports. The article gives a good summary of PBGC Executive Director Steven A. Kandarian’s testimony before a congressional committee last week that outlined why the PBGC is in such bad shape:

Active workers account for 53 percent of those insured by the PBGC, down from 78 percent in 1980;

Companies in the most mature, capital intensive industries that have the toughest time funding plans also have huge numbers of older workers and retirees;

People are living longer in retirement: 18.1 years for the average male today, vs. 11.5 years in 1950;

Pension funding rules prevent companies from increasing contributions when they can afford to and don’t require weak companies to fund underfunded plans.

If you would like to learn more about the U.K.’s pension system and the problems they are struggling with, read “Don’t bumble in pensions jungle” at the Liverpool Echo. The article states that “few aspects of the financial world are so confusing and jargon-ridden as pensions” but that “[d]espite the uncertainty one thing is true, however – a struggling pension is better than no pension at all.”

“The Benefits Buffet: By picking wisely, workers can save money and keep their budget healthy“: Mark Schwanhausser for the Mercury News via Yahoo! News reports. The article notes an ugly prediction for 2004 for most workers: “Your pay will remain flat, but your health-care bills will rise. Somehow, you must squeeze several hundred dollars from your budget just to break even.” Employees are counseled to work hard at examining their benefits packages and to make wise decisions about choosing the benefits that are right for them, even though trying to decide what to choose is likened to eating an elephant.

The Associated Press for the Washington Post has a good article on how companies are helping employees plan for retirement: “Companies Helping Workers Plan Retirement.” The article reports that at “Ernst & Young, requests for proposals to design and run retirement planning programs for companies are about 20 percent higher this year, compared with typical annual increases of 2 percent to 3 percent over the past decade.”

On a related subject, PlanSponsor.com has an article entitled “Schwab Offers Participants Free Advice“, discussing how Schwab Retirement Plan Services has announced that “participants in plans serviced by Schwab Retirement Plan Services will now have access to customized advice either online, by phone, or in person – including specific recommendations among the core investment fund choices available in a retirement plan – courtesy of an arrangement with San Jose, California-based GuidedChoice.” According to the article, Schwab is providing the Guided Choice tool for free.

Mark Davis for the Kansas City Star reports: “Companies free employees to sell stock.” The article notes that many companies have “unlocked” their employees 401(k) stock accounts permitting them to sell their company stock and invest the money elsewhere, but that employees are not taking advantage of the flexibility as much as would be expected in light of the Enron and WorldCom disasters. The article looks into why employees are not diversifying. The most compelling reason (IMHO) is found in this statement: “Everybody’s dreaming about the company’s stock exploding like it did five years ago.” Unfortunately, the article predicts that “[t]hat’s just not going to happen.”

The September issue of Workforce Management also has a very interesting article by Nancy Randle discussing a growing trend among companies to offer on-site chaplains to counsel employees on matters ranging from family problems to grief management. The article–“Deskside help for troubled workers: Companies hire outsource chaplains“–states that according to the National Institute of Business and Industrial Chaplains there are about 4,000 pastors in the workplace nationwide (with cost ranging from $8-10 a month per employee) and that reasons for the trend could be terrorism and job insecurity, contributing to employee anxiety. (Link is to Table of Contents–subscription required.) The article also notes that President George W. Bush can also be credited with fueling the trend since he is “very forward in the practice of his his faith in the workplace, which has opened the door wider for business owners to say, ‘If it’s good enough for him, it’s good enough for me.'”

Andy Meisler for the September issue of Workforce Management magazine writes an article–“They came from the Internet“–which discusses the proliferation of blogs which cover workforce-related issues. (Link is to table of contents for September issue.) Some of the blogs featured are Benefitsblog (along with a picture of yours truly!), George’s Employment Blawg, and HIPAA Blog. Unfortunately, you cannot link to the article since it is only available to subscribers. (Somehow an article about blogs just ought to be linkable in the blogosphere.) Thanks to Andy and the editors of Workforce Management for such a great article.

Quote of Note from the Article: “Recently, the blog bug seems to have bitten particularly hard among workforce professionals and consultants. . .A short stint of Googling turns up enough work-force management blogs to keep the average workforce manager distracted from real work almost indefinitely.”

(Please note that I have included a category over in links on the right for “HR-Related Blogs.”)

According to this article at NJ.com–“Retirees’ benefits under scrutiny: Politicians help ex-Steel workers address state’s problems with plan“–the Pennsylvania State Insurance Department is claiming a health plan for retirees under age 65 is not in compliance with state insurance law and puts consumers at risk. “The Retired Employees’ Benefits Coalition Inc., a Bethlehem-based organization which represents salaried Steel retirees, obtained the health benefits plan through the National Employees Benefit Cos. Inc. of Warwick, R.I., after Bethlehem Steel was taken over by International Steel Group of Cleveland earlier this year,” the article states. The benefits are provided through a VEBA which NEBCO is claiming is subject to ERISA, and therefore exempt from regulation by state insurance laws.

Albert Crenshaw for the Washington Post reports on the pension funding crises: “Pension-Liability Shortfall Said to Rise: Total Could Exceed $80 Billion This Month, Federal Agency Estimates.”

The Wall Street Journal also reports: “Warning of Pension-Plan Shortfall Raises Pressure for Financial Fix.” The article points out that some experts are saying that the PBGC is exaggerating the pension funding crises and that much of the current funding woes are due to temporary factors such as low interest rates and stock-market setbacks that have lowered the value of pension-plan assets. However, the article refers to testimony by Steven Kandarian, executive director for the PBGC, before the House Committee on Education and the Workforce Thursday, which shows that companies’ public disclosures often understate the dimensions of their problems because of lax reporting rules:

As the agency has taken over troubled plans in the steel, airline and retail sectors in the past year, officials have noted that many have turned out to be much more severely underfunded than the companies had publicly reported. Bethlehem Steel, for example, reported its pension fund was 84% funded — a relatively healthy condition. But when the agency took over the plan, it found it was actually 45% funded, with a shortfall totaling $4.3 billion . . .

Another report by the Wall Street Journal—Payrolls Drop by 93,000 Jobs As Unemployment Rate Declines–states that “employers cut jobs for a seventh consecutive month in August” even though the “economy grew at a solid 3.1% annual rate in the second quarter, and forecasters are betting third-quarter growth will be at least 5%.” The article states what I think is the one of the most pressing concerns for our country:

Some economists harbor concerns about long-term structural problems in the economy, such as a flood of U.S. jobs going overseas. “We have simply seen the tip of the iceberg,” said Sung Won Sohn, chief economist at Wells Fargo. “I think it will get worse, not better.” Some reports estimate 5 million jobs — many high-paying — will be lost to other countries by 2015. The economy is growing, but demand is being filled from overseas, Mr. Sohn said.

Another Wall Street Journal article yesterday reports that “A Popular Stock Perk Faces Some Cutbacks.” The article notes that companies are cutting back their employee stock purchase plans. In a typical plan, employees may elect to have a set amount of money deducted from their paychecks which is then used to buy shares of the employer’s stock at a price that is usually somewhere around 15% below the price of the shares at the beginning or end of the offering period, whichever is lower. The article reports that some companies have reduced the discount from 15% to 5% while others have sharply cut the maximum amount that an employee can contribute to the plan. The reason? Anticipation of proposed changes by FASB to expense stock options which you can read about in many previous posts here.

“Get Tax-Cut Benefits This Year“: the Wall Street Journal explains how the Jobs and Growth Tax Relief Reconciliation Act of 2003 may cause a reduction in the amount of estimated taxes you owe on September 15th of this year.

Yesterday’s post which you can access here discussed the IRS’s recent ruling, Revenue Ruling 2003-102, which provides that over-the-counter drugs can be paid for with pre-tax dollars through health care flexible spending accounts (“FSA’s”) and that employer reimbursements for nonprescription drugs by an employer health plan are excluded from income. I had been wondering about the effective date of this ruling since the language of the ruling is not clear on the subject and had called the IRS to request clarification. This article mentioned yesterday at SFGate.com—“Feds approve using pretax cash for OTC drugs”–states:

The Internal Revenue Service and the Treasury Department, in a joint press release Wednesday, said, “Over-the-counter drugs can be paid for with pretax dollars through health care flexible spending accounts,” retroactive to the beginning of the plan year.

It was not clear from the ruling whether or not this statement about the changes being retroactive to the beginning of the plan year was necessarily accurate.

In informal discussions with the IRS today (with Barbara Pie who is mentioned in the ruling), it was clarified that whether or not an employer may utilize the ruling retroactively to the beginning of the plan year depends upon the wording of the plan documents. For plans with documents already drafted broadly enough to permit reimbursement of such expenses (e.g., the plan does not limit reimbursement to prescription drugs), it would be possible to permit reimbursement of expenses that were incurred since the beginning of the plan year without a plan amendment, as long as the expenses could be substantiated. For plans that must be amended to allow reimbursement of the cost of over-the-counter drugs, the amendment may only be effective prospectively once the plan is amended. The IRS emphasized, however, that even though an employer may amend the plan mid-year to permit reimbursement of the cost of over-the-counter drugs, participants are, of course, not permitted to change their elections mid-year as a result of the plan amendment. However, for those who have failed to use up their FSA accounts for the year, a mid-year amendment just might help employees to use up their accounts before the use-it-or-lose-it rule comes into play.

The EBIA Weekly newsletter which came today also confirms the same result on the effective date issue. The newsletter provides some helpful information regarding substantiation of expenses for non-prescription drugs:

Our informal discussions with an IRS official indicate that the name of the drug and the date it was purchased would be needed on the pharmacy receipt (but not the consumer’s name, so long as the participant certification in that respect is adequate).

UPDATE: Another article on the new ruling–“Flexible spending accounts take bite out of tax bill“–at Bankrate.com.

SHRM has a great article in this month’s issue of the HR Magazine: “Fiduciary Fitness.” (Unfortunately, only members can access the article.) The article would be very helpful to those HR professionals and executives seeking to attain a good overview of the complex area of ERISA fiduciary compliance. The article reports:

Interest in fiduciary education is running strong because fiduciaries increasingly want to be sure they’re complying with ERISA’s complex requirements, particularly in the tense environment created by the dozens of lawsuits against companies-Enron Corp., WorldCom Inc. and R.J. Reynolds Tobacco Co., to name a few-alleging breaches of fiduciary responsibility.

The article emphasizes a point made here quite often at Benefitsblog:

As many human resource managers know, ERISA compliance is a complex, time-consuming process that requires close, continuous attention, the expertise of a team of specialists and, above all, prudent behavior. Although the meaning of prudence varies with the situation, experts generally maintain that a fiduciary who creates, follows and documents processes and procedures to make informed decisions is doing the right thing.