Month: February 2006

Thank you to the mysterious Pension & Benefits Blogger (previously Beneblogger) for alerting us last week to the IRS’s recent Employee Plans Determinations Quality Assurance Bulletin entitled “Part-Time Employees Revisited.” The Bulletin is an item that every benefits lawyer should have at his or her fingertips. Most enlightening, in my opinion, are the examples which clearly show the IRS’s strong aversion (which has become even stronger now as indicated under this Bulletin) to any exclusion of employees by classification that looks and smells like an “indirect service requirement that could result in the exclusion of an employee that completes 1,000 hours of service.” In other words, a qualified plan cannot exclude folks as a class from participating by classifying them as “part-time” or “seasonal” because they might end up working at least 1,000 hours during the year, resulting in an improper exclusion under the rules.

Also, the Bulletin makes it clear (Example 3) that a plan cannot exclude a group of employees under a generic name like “Class B Employees” without defining in the Plan the specifications for such Class. This is because the IRS wants to make sure that the classification will not be making an “end-run” around the service requirements of the Internal Revenue Code and ERISA, i.e. that the employees are not being improperly excluded because of service.

The IRS even goes on to provide a definition that would meet the rules. The IRS says that “Class B Employees” could be defined as an “employee who is a member of the substitute workforce of the Employer, as distinguished from regular full-time and part time employees, that is a separate employment classification based upon availability to work” and the classification would be acceptable.

See this previous post–Employers Utilizing More Temp and Part-time Employees: Be Wary of Qualified Plan Issues–for a discussion of how improperly excluding part-time employees from a qualified plan can result in the need to make corrections. The post goes on to discuss the correction methods mentioned in Rev. Proc. 2003-44 for making an excluded employee whole. However, please note that the correction method for making improperly excluded employees whole in a 401(k) plan has been softened somewhat since I wrote that post. IRS has been indicating for some time at various conferences and meetings that they will issue a new Revenue Procedure which will provide revised correction procedures for replacing contributions of missed pre-tax deferrals of improperly excluded employees in a 401(k) plan. The new procedures will no longer require making up the full average deferral percentage (“ADP”) contribution for the excluded employee, but instead will only require a make-up contribution of 50 percent of the ADP contribution amount. However, the full match will still be required based upon the full ADP amount.

Also, as BNA reports this week in their Pension & Benefits Reporter, the IRS is also saying that the new Rev. Proc. will provide that replacement contributions for missed after-tax employee contributions will be equal to 40 percent of those missed contributions.

Number of Germs. (Source: Accounting Web) A study funded by the Clorox Company compared germ levels of professions as well as surfaces within the profession’s offices. Results indicate that the “germiest” jobs are:

• Teacher
• Accountant
• Banker
• Radio DJ
• Doctor
• Television Producer
• Consultant
• Publicist
• Lawyer

The article goes on to note that “[t]he desks and pens of lawyers had the lowest levels of germs, as did the telephones of publicists, the computer keyboards of bankers and the computer mouse of TV producers.”

The Clorox Company announced the results of the study here.

Interesting point from this Wall Street Journal op-ed: “Health Care or a House?” Excerpt:

Imagine walking into a job interview and your potential employer tells you that the best thing about working there is that the company will buy you a house. While it sounds preposterous, it just might be cheaper than providing you with health insurance.

The 2005 Kaiser Family Foundation Survey found that the average premium for family medical coverage is $10,880 per year, which is approximately $906 per month. According to the National Association of Realtors, the median price of existing single family homes in December was $211,000. With 20% down and a 30-year mortgage at 6.25%, the cost of buying the home is $1,040 per month. Given the choice between paying an average employee’s fixed-rate mortgage at $1,040 a month or paying for health care, the employer would be better served paying the mortgage. At least the mortgage payment will remain $1,040 a month 10 years from now; the monthly health insurance premium is likely to more than double, to $2,400.

I have inserted the 2006 Retirement Plan Limits over in the side-bar on the right. (Long overdue.)

Also, thanks to Tom Mighell for the mention of Benefitsblog in “The Strongest Links” published in the ABA’s Law Practice Today.

What are the most likely features employers will add to their defined contribution plans in 2006? This survey by Hewitt–“Hot Topics in Retirement for 2006“–lists the following:

• Automatic enrollment
• Automatic rebalancing*
• Online third party investment advisory services
• Automatic contribution escalation**
• Roth 401(k) contributions
• Managed accounts
• Annuities as a form of payment option; and
• 401(k) disability insurance.

* Automatic rebalancing – the ability of employees to have their investment mix rebalanced periodically to a target mix of investments that they select.
**Automatic contribution escalation – the ability of employees to have their contributions to a plan automatically increased over time.

From Peter Leo of the Pittsburgh Post-Gazette:

How do we love thee?
Let us count the gross adjusted income.

(Hat tip: TaxProf Blog)

As many of you already know, the Retail Industry Leaders Association (“RILA”) filed a challenge to Maryland’s Fair Share Health Care Fund Act — the so-called Wal-Mart bill — in U.S. District Court last week. You can access the complaint filed here. You can also access a web page here by RILA devoted to its opposition to state health care mandates as well as this document discussing their arguments in favor of ERISA preemption: “Legal Overview: Discriminatory Health Care Mandates.” Excerpt:

Union supporters also will argue that their proposed laws are not mandated health care laws because they give employers the ?choice? whether to pay money to the state or for increased employee health coverage. But paying the state is no choice at all?it is a penalty?because no employer would ?choose? to write a check to the state for which it received nothing in return. The Supreme Court made essentially the same point when it indicated there would be preemption for ?a state law whose economic effects, intentionally or otherwise, were so acute ?as to force an ERISA plan to adopt a certain scheme of substantive coverage.?? DeBuono v.
NYSA-ILA Med. & Clinical Servs. Fund, 520 U.S. 806, 816 n.16 (1997). In the words of the Supreme Court, this is ?a Hobson?s choice? prohibited by ERISA. Travelers, 514 U.S. at 664.

The Workforce Prof Blog has comments here regarding the litigation.

See a previous post here at Benefitsblog discussing the legal debate over the legislation.

Portion of the President’s State of the Union address on health care:

“Keeping America competitive requires affordable health care. (Applause.) Our government has a responsibility to provide health care for the poor and the elderly, and we are meeting that responsibility. (Applause.) For all Americans — for all Americans, we must confront the rising cost of care, strengthen the doctor-patient relationship, and help people afford the insurance coverage they need. (Applause.)

We will make wider use of electronic records and other health information technology, to help control costs and reduce dangerous medical errors. We will strengthen health savings accounts — making sure individuals and small business employees can buy insurance with the same advantages that people working for big businesses now get. (Applause.) We will do more to make this coverage portable, so workers can switch jobs without having to worry about losing their health insurance. (Applause.) “

Allan Hubbard, Assistant to the President for Economic Policy and Director, National Economic Council, and Roy Ramthun, Special Assistant to the President, National Economic Council, followed up with a special press briefing today with more details on the President’s health-care initiative. You can access the transcript of the briefing here. Excerpts from the transcript:

“Now, as you know, the President spent much of last night, when he talked about health care, talking about enhancing and improving health savings accounts. These accounts are working extremely well. We had — a million people had health savings accounts a year ago; today there are 3 million. This is an opportunity for people to have, as they say, more skin in the game. The better consumers and the frustration that we’ve heard from the people with HSAs is that they don’t have as much — they don’t have the information they need to be good consumers. And that’s why the President is going to be talking about this, and working with employers and insurance companies to encourage them to work with us to insist that providers provide this information.

With respect to HSAs, what the President wants to do is level the playing field so people who buy insurance, themselves, have the same tax advantages as people who get the HSAs through employers. Right now if you buy the — literally, the same insurance policy, the same HSAs, you pay 30 percent to 50 percent more than you would if you got it through your employer. That is not fair, and the President wants to fix that. He also wants to allow people to contribute significantly more to the HSA up to their out-of-pocket max. And, finally, he wants to give employers and insurance companies the options of making HSA’s portable.

Now, you know, some people say, well, HSAs are just for the rich and the well. As it turns out, of the 3 million people who have taken up HSAs, 37 percent were previously. . . uninsured. . Forty percent earn less than $50,000 a year. So, obviously, HSAs are very attractive to people in the lower side of income scale — and for good reason, because HSAs are less expensive. And they also are a better way to control costs. The costs of HSAs went up 2 percent this past year, while the cost of regular insurance went up 7 percent.”

The briefing also talked about ERISA:

Q Could you then maybe talk a little bit more about on the portability question — what types of rule changes might need to be made, or legislative changes would need to be made to achieve this kind of portability you’re talking about?

DIRECTOR HUBBARD: Absolutely. And, again, what we’re talking about is making this optional for insurance companies and for employers. But the way it would work would be for a portable HSA insurance policy to be ERISA-based, so it would not be tied to any particular state, which would allow someone to leave his or her employer, take that policy with him or her, and know that it would not be underwritten for health reasons. So you can keep that policy with you as long as you want it. And you can take it anywhere in the country.

So, again, it would make it where people would not have job lock, they would not — if they have illness in their family, they would not have to worry about leaving their job, losing their insurance and not be able to find affordable insurance. And this is good for those individuals, and it’s also good for the economy. Because what makes our economy so strong is the ability of people to move from job to job to find the best situation for them.

Q So would that require legislative change, then?

DIRECTOR HUBBARD: That definitely would require —

Q And it would be a change to the HIPAA law or the ERISA law?

DIRECTOR HUBBARD: It would be a change to — I’m going to let Roy answer that.

MR. RAMTHUN: Well, the ERISA law, which was amended by HIPAA, and there’s all kinds of things that we’re going to have to figure out those details.

Q We’ve heard a lot about leveling the playing field in terms of tax breaks, and I’m wondering if we’re giving new tax preferences to HSAs and not to other forms of insurance? Aren’t we, in effect, giving HSAs preference, and doesn’t that keep the insurance industry from sort of doing its market thing and working things out and giving consumers choice?

DIRECTOR HUBBARD: Well, we are giving the preference to HSAs. We think — but, by the way, there’s a lot of flexibility with HSAs in terms of the size of the deductible, the co-insurance provisions and other provisions. But we think HSAs are the prudent way for people to insure themselves in America, because you have catastrophic insurance and then you put into your health savings account money to deal with lower cost health care needs. So you’re absolutely right, this is a bias towards health savings accounts because it’s going to make it where individuals who buy health savings account get the tax advantage that employers get when they provide insurance.

See also this Whitehouse press release here: Affordable and Accessible Health Care.

KaiserNetwork.org has a a whole webpage here devoted to the President’s health-care initiative and more relevant links here.

An article showing negative and positive reaction to the agenda: “President’s Health Reform Agenda Draws Mixed Reviews.”