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The President’s Benefits Budget Proposals

ThinkstockPhotos-122516159A few weeks ago, the President released his proposed budget for the fiscal year 2017. As usual, it is dense. However, the President has suggested some changes to employee benefits that are worth noting. While they are unlikely to get too much traction in an election year, it is useful to keep them in mind as various bills wind their way through Congress to see what the President might support.

  • Auto-IRAs. Stop us if you’ve heard this one before. The proposal would require every employer with more than 10 employees that does not offer a retirement plan to automatically enroll workers in an IRA. No employer contribution would be required and, of course, individuals could choose not to contribute. (In case you’ve forgotten, we’ve seen this before.)
  • Tax Credits for Retirement Plans. Employers with 100 or fewer employees who “offer” an auto-IRA (note the euphemistic phrasing in light of the first proposal) would be eligible for a tax credit up to $4,500. The existing startup credit for new retirement plans would also be tripled. Small employers who have a plan, but add automatic enrollment would also be eligible for a $1,500 tax credit.
  • Change in Eligibility for Part-Timers. The budget would require part-time workers who work 500 hours per year for three consecutive years to be made eligible for a retirement plan.
  • Spending Money to Help Save Money. The President proposes to set

Congress Engages in Some Holiday Spending on Benefits

Congress’s recent $1.8 trillion holiday shopping spree (aka The Consolidated Appropriations Act, 2016, which became law on December 18, 2015) included a few employee benefit packages. We recently unwrapped the packages. Here is what we found.

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1.   Cadillac Tax Delayed. The largest present under the employee benefits tree is a delay in the so-called “Cadillac” tax, which as originally enacted imposed a 40% nondeductible excise tax on insurers and self-funded health plans with respect to the cost of employer-sponsored health benefits exceeding statutory limits. The tax is now scheduled to take effect in 2020 rather than 2018. Once – or if – the delayed tax provision becomes effective, it will be deductible. The cost of this gift is $17.7 billion.

Since the Cadillac tax is basically unadministrable in its current form, we can’t imagine there is even one person at Treasury who would champion it. Expect a full repeal of the tax shortly after a new administration, whether Republican or Democrat, takes office in January 2017.

2.  Medical Device Excise Tax Suspended for 2016 and 2017 and Health Insurance Tax Suspended for 2017. The Affordable Care Act, as adopted in 2010, imposes an excise tax equal to 2.3% of the sales price of certain medical devices. Opponents of the medical device tax argued that it has been a drain on the economy and has halted investment in research and development for life-saving technologies. Many members of Congress agreed. Thus, a two-year

Reacting to Our Failure to Effect Sound Retirement Policy

December 11, 2015

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Reacting to Our Failure to Effect Sound Retirement Policy

December 11, 2015

Authored by: benefitsbclp

Puzzle PiecesEver since ERISA was first promulgated, and notwithstanding consequential economic, societal and demographic changes, efforts at improving the nation’s employer-based retirement structure have had fits and starts mostly due to the failure of Congress and the Nation to revisit retirement policy in a meaningful way. A cynic (or maybe a pragmatist) would surely believe that Congress’ part in failing focuses primarily on using the retirement system as a tool to exact revenue for the federal treasury, contrary to policies that enhance tax advantages for retirement saving. The smoke and mirrors of Congressional budgeting lead to intentional ignorance of most of the impact of long-term revenue from the retirement system.(To say nothing of changes to the Social Security system, which is beyond the scope of this piece.)

ERISA was a wonderfully crafted and meaningful law when it passed more than forty years ago. Today, it still provides, in no small measure, the intended benefits and protections that were expected in 1974. But times change and so has the retirement system. When ERISA was passed, it focused on a system designed primarily to address defined benefit pension plans. Over the years, Congress has tweaked ERISA dozens of times, but taken together, the extent of changes and the voluminous regulations needed to give guidance to them do more to choke the system than to improve it.

Worst of all, a piecemeal effort at addressing the retirement

Did They Do It? The Department of Labor “Clearing the Way” for State-Based Retirement Plans

It is not news that Americans aren’t saving enough for retirement. But, what is news, is that this Administration seems to be bent on making some meaningful change on that front with the enactment of one particular solution – state-based retirement plans. After hearing the marching orders of the President to clear the path for state-based retirement savings initiatives (including legislation that automatically enrolls employees in IRAs), the Department of Labor has declared VICTORY!

But let’s take a closer look. What did the Department actually do? And will it withstand public commentary, let alone judicial scrutiny?

Last week, the Department issued two pieces of guidance: an Interpretive Bulletin and a Proposed Regulation. Each attempts to tackle a different element of the state-based IRA arena:

  1. ERISA-Covered Plans, But No Preemption?

Performing a little fancy footwork, the Department issued an “Interpretive Bulletin” (which is, in effect, an interpretation of the Department’s reading of ERISA) in which it describes three specific platforms which purport to allow voluntary employee savings in IRAs. While the Department admits that ERISA will apply in these situations, it rather boldly asserts that the broad preemption provision embedded in the ERISA statute will not preempt these platforms.

Let’s set the scene: ERISA Section 514(a) outlines a sweeping preemption clause claim that ERISA “shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan”. Guided by its desired result (allowing state laws which

Risk-Shifting and the Demise of the Determination Letter Program

Risk ShiftingLast week, at the Western Benefits Conference, IRS Commissioner of the Tax Exempt and Government Entities Division, Sunita B. Lough, addressed the conference minutes after the IRS released Ann. 2015-19, 2015-32 IRB.  This is the announcement reforming the determination letter process primarily for individually designed plans.

Commissioner Lough explained the rationale for elimination of the determination letter process for individually designed plans other than on plan adoption and termination.  She stated that the average time a reviewer takes to determine that a plan is compliant is three hours.  This limited time results from the significant number of applications and the shortage of qualified IRS personnel due to budget limitations.  Based on a three hour review, the IRS has been issuing, in her view, an opinion letter that would take a law firm tens of hours to review and re-review before a partner’s signature was applied.  She finds it to be inappropriate for the IRS to be on the absolute risk when it is hamstrung in this fashion.  In other words, the demise of the determination letter program results from a cost/benefit analysis where the Service has determined that it is best to shift the risk of having a compliant plan document to the plan sponsor.

To lessen the risk for the plan sponsor, Commissioner Lough stated that the Service will promulgate model language for all needed qualification amendments.  The IRS will also

Employee Stock Ownership Plans: Another Tool for Family-Owned Banks

Today’s economy presents numerous challenges to community bank profitability—compressed net interest margins, increased regulation, and management teams fatigued by the crisis. In response to these obstacles, many boards of directors are exploring new ways to reduce expenses, retain qualified management teams, and offer opportunities for liquidity to current shareholders short of a sale or merger of the institution.

For many family-owned banks, their deep roots in the community and a desire to see their banks thrive under continued family ownership into future generations can cause these challenges to be felt even more acutely. In particular, recruiting and retaining the “next generation” of management can be difficult. Cash compensation is often not competitive with the compensatory packages offered by publicly-traded institutions, and equity awards for management officials are unattractive given the limited liquidity of the underlying stock. All the while, these institutions should ensure that their owners have reasonable assurances of liquidity as needs arise or as investment preferences change. In combination, these challenges can often overwhelm a family-owned bank’s desire to remain independent.

Depending on the condition of the institution, implementing an employee stock ownership plan, or ESOP, may help a board address many of these challenges. While the ESOP is first a means of extending stock ownership to the institution’s employees, an ESOP can have other applications for family-owned banks.

Recruitment and Retention An obvious benefit of an ESOP is to provide management and employees the ability to participate in an increase in the value of the

“King” of the Road

“King” of the Road

July 6, 2015

Authored by: Chris Rylands and Lisa Van Fleet

ACAIn Roger Miller’s 1964 hit by the above name, he tells the tale of “a man of means by no means,” a man just scraping to get by. While he may not have a phone, a pool, pets, or cigarettes (and really, what does he need that last item for anyway?), after the Supreme Court’s 6-3 decision on June 25, however, such a man might be able to secure a premium tax credit to help pay for health insurance (yes, we realize he’d probably be Medicaid eligible, but just work with us here).

But what does the ruling mean for employers? At first, it might appear that it doesn’t mean very much; life under the Affordable Care Act will continue to move along much as it has for the last few years. That’s basically true, but there are some points to consider:

  1. This solidifies that the employer “play or pay” mandate is now effective nationwide. Because an employee must receive a premium tax credit to trigger the penalty, a decision the other way would have rendered the mandate ineffective in states with federal exchanges.
  2. For employers perhaps continuing to adopt a “wait and see” (or “ostrich,” depending on your point of view) approach to ACA implementation, the truth is that you’re already late. But given this decision, now is the time to start, if you haven’t

After Obergefell, Is it “Get Married Or Else”?

After Obergefell, Is it “Get Married Or Else”?

July 1, 2015

Authored by: Chris Rylands and Denise Erwin

Gavel and RingsAs has now been widely reported, the Supreme Court ruled on June 26 (the second anniversary of the Windsor decision) that same-sex couples have a right to marry in any part of the United States. Despite being hailed as a victory for marriage equality, as this New York Times article points out, it may not be such happy news for currently unwed domestic partners. Specifically, there is a concern, as the article points out, that employers who previously extended coverage to domestic partners out of a sense of equity may now decide not to since both opposite-sex and same-sex couples can now marry.

As the article mentions, there was a concern at one time that domestic partnership rules would be used by some employees to cover individuals with whom they are not really in a committed relationship. Given that not all states have registration requirements or clear standards, it was largely up to employers to set the standards for what constituted enough of a commitment for a domestic partner to warrant coverage. The difficulty was that employers had to balance not covering individuals who really were not in committed relationships with setting a standard low enough that those who really were in such relationships could qualify. The article says that it does not appear that this was really a problem, but of course, the validity of such relationships are more

How to Avoid the “Kitchen Sink” Appeal and Other Nuances for A Self-Insured Health Plan

For many years, medical plan drafting was viewed as a commodity. Insurance companies, third-party administrators and brokers often prepared summary plan descriptions and plan documents for self-insured medical plans using form documents. With the passage of the Affordable Care Act and other health-care related laws, however, medical claims, appeals and litigation have increased exponentially. In many instances, the terms of the plan documents have been outcome-determinative with respect to these disputes. There never has been a better time for an employer to step back and take a comprehensive review of the terms of the employer’s self-insured medical plan document and summary plan description, not only for compliance reasons but also to put the employer in the best position in the event of any dispute. The following are three drafting tips which might be considered during such a review.

Kitchen SinkAvoiding the “Kitchen Sink” Appeal. Increasingly, our clients have been receiving lengthy appeals of denied claims for benefits. We refer to these epistles as “kitchen sink appeals” because the authors of the letters seemingly throw in everything but the kitchen sink. A typical kitchen sink appeal is prepared on behalf of an out-of-network provider who claims standing to appeal based on an assignment of benefits by a plan participant. A kitchen sink appeal is often a “cut-and paste” compilation of 25 pages or more, usually containing long passages and references to cases which appear

Five Years into Health Care Reform – A Quick Look at What’s Still on the Horizon

Time flies when you’re having fun… or something like that?! Next month will mark the fifth year anniversary of the enactment of the Patient Protection and Affordable Care Act (as amended by the Health Care and Education Reconciliation Act). This is a law of many names including the ACA, PPACA, health care reform, Obamacare (amongst others that we can’t in good conscience commit to writing – especially in a professional publication) and a law of many facets. As we approach the five year mark of living with this law, many questions have been answered (at least in part, right?). After all, numerous reports have recounted the staggering number of pages of guidance issued in connection with the ACA – remember Rep. Richard Hudson’s exaggeration that we have 33,000 pages of guidance and Senator Mitch McConnell’s estimate at 22,000 pages? And both these figures were announced in the first half of 2013.

Theatrics and dramatic page-counting aside, there is no doubt that many government agencies having been working on all many cylinders to make sense of this transformative law. Even so, employers are only two months into the official employer mandate and there are countess questions still left unanswered on many ACA fronts.

The Republican-controlled Congress is hard-charging to repeal – or, more accurately, to repeal and replace – the law. If any version of the modification law makes it through the Senate and avoids a veto, that would inevitably undo much of our work (and most swiftly, perhaps, change the

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