Health Care Reform Update: IRS Proposes Regulations on Employer Penalty
The Internal Revenue Service has released proposed regulations on the health care reform employer "shared responsibility" penalty provision. This is the penalty on "large" employers (those with at least 50 full-time or full-time equivalent employees) that do not provide affordable minimum essential coverage for full-time employees and their dependents and have at least one full-time employee who receives subsidized Exchange coverage (new Internal Revenue Code section 4980H, enacted as part of the Patient Protection and Affordable Care Act of 2010 as amended by the Health Care and Education Reconciliation Act of 2010). The IRS also posted on its website a set of related questions and answers.
Employers Affected
An employer meets the penalty provision's large employer threshold if it employed, on average, at least 50 full-time or full-time equivalent employees in the prior calendar year. Thus, for 2014, the first year the penalty is effective, an employer would consider the average number of such employees it had during 2013 to determine whether it is a covered large employer. The proposed regulations include a transition rule under which employers may use any consecutive six-month period in 2013, instead of the full year, to calculate the average number of employees.
A full-time employee is one who is employed by the employer an average of 30 hours per week. Part-time employees count, too, taking into account the number of full-time equivalents: For a given month, add the number of hours for all part-time employees (counting no more than 120 hours for any one employee) and divide by 120. Count all hours worked and all hours for which payment is made or due for vacation, illness, holiday, incapacity, layoff, jury duty, military duty, or leave of absence. Notice 2011-36 had limited the period of leave that must be included to 160 hours but the proposed regulations eliminate this limitation.
The proposed regulations clarify that the IRS's safe harbor for determining full-time status (i.e., using the look-back/stability period approach) will not apply for purposes of determining whether an employer meets the threshold of 50 full-time employees. Instead, whether an employer is a large employer for a given year will be determined by calculating employees' actual hours of service in the immediately preceding year. Equivalency rules may be used for employees not paid on an hourly basis. An entity not in existence in the preceding year may be a large employer in its first year if it is reasonably expected to employ an average of at least 50 full-time employees during its first year. Special hours-counting rules are proposed for educational institutions, employees paid on a commission basis, and other circumstances.
Whether a worker is an employee of a particular employer will be based on the long-standing common law principle that, if a service recipient has the right to direct and control how a worker performs services, that service recipient is the worker's employer. The proposed regulations also reiterate that controlled group rules apply for purposes of identifying the employer. Thus, all common law employees of all entities that are part of the same controlled group or affiliated service group must be counted to determine whether the threshold of 50 full-time employees is met.
Assessable Penalty for Affected Employers
For a given month beginning after 2013, if an employer does not offer minimum essential coverage to "substantially all" of its full-time employees and their dependents and a full-time employee obtains subsidized Exchange coverage, the employer must pay a penalty equal to $166.67 multiplied by the number of its full-time employees in excess of 30. Under the proposed regulations, "substantially all" means all but five percent of full-time employees or, if greater, five full-time employees. The proposed regulations define "dependent" as a child, within the meaning of Code 152(f)(1), who is under age 26. (Thus, a spouse is not a dependent.) The proposed regulations offer transitional relief (only for 2014) for employers that do not currently provide dependent coverage. Any employer that takes steps during its plan year that begins in 2014 toward offering dependent coverage will not be liable for penalties solely on account of its failure to offer dependent coverage for that plan year. The proposed rules also explain that the 30-employee reduction used when calculating this penalty is applied on a controlled group basis so that each member company reduces its number of full-time employees by a ratable share of 30.
If an employer offers minimum essential coverage to substantially all of its full-time employees and their dependents, but a full-time employee nevertheless obtains subsidized Exchange coverage (i.e., because the employer's coverage fails to meet the minimum value or affordability test), the employer must pay a penalty equal to the lesser of the penalty determined in the preceding paragraph or $250 multiplied by the number of full-time employees who are certified as having subsidized Exchange coverage for the month.
Since no penalty is triggered unless at least one full-time employee obtains subsidized Exchange coverage, it is important to know whether a full-time employee can obtain subsidized Exchange coverage. An employee can obtain subsidized Exchange coverage only if his or her household income is between 100 percent and 400 percent of the federal poverty line, he or she enrolls in Exchange coverage and is not eligible for Medicaid (or other government coverage), and either no employer coverage is offered or the employer coverage offered fails to meet either a minimum value test or an affordability test:
- Employer coverage meets the minimum value test if it covers at least 60 percent of the total allowed cost of benefits that are expected to be incurred under the plan. The Department of Health and Human Services is working with IRS to develop a calculator that employers may use to determine whether this test is met.
- Employer coverage meets the affordability test if the employee is required to pay no more than 9.5% of his household income for self-only coverage. Since employers have no practical way of knowing what an employee's household income is, the IRS previously stated that employers could use an employee's W-2 reported wages as a safe harbor. The proposed regulations explain how that safe harbor would apply, including how it would apply to partial years worked. The W-2 safe harbor will be very useful to most employers, but the proposed regulations also offer two additional safe harbors that employers may use to determine affordability: one based on monthly rate of pay (i.e., coverage is affordable if the employee's monthly cost for self-only coverage does not exceed 9.5% of his monthly rate of pay) and the other based on eligibility for Medicaid (i.e., coverage is affordable if the employee's cost for self-only coverage does not exceed 9.5% of the federal poverty line for a single individual).
If an employee elects coverage under an employer's group health plan, the employee cannot qualify for subsidized Exchange coverage even if the employer coverage fails the minimum value or affordability test. However, providing mandatory group health coverage that fails the minimum value or affordability test will not prevent an employee from obtaining subsidized Exchange coverage.
The proposed regulations retain the look-back/stability period safe harbor method provided in prior guidance for determining which employees are full-time for purposes of the penalty calculation. Thus, an employer can use a look-back period of up to 12 months to determine whether an on-going employee (i.e., one employed for at least the length of the look-back measurement period selected) is a full-time employee. If an employer uses a look-back/stability period for its on-going employees, it also can use the look-back/stability period for new and seasonal employees. The proposed regulations include additional special rules for a new variable-hour employee or seasonal employee whose status changes during the look-back measurement period, for rehired employees and employees returning from unpaid leaves of absence, for employees of temporary agencies, and for other special circumstances.
The proposed regulations assure that an employer will (a) receive certification of an employee's receipt of subsidized Exchange coverage and (b) have an opportunity to respond regarding application of the penalty before IRS actually assesses a penalty in connection with that employee.
Recordkeeping obviously is important both for compliance (existing law already requires substantial recordkeeping for tax purposes) and to substantiate any defense to a penalty.
Opportunity to Comment on Proposed Regulations
Employers and other stakeholders can help shape final regulations at a public hearing on April 23, 2013, and by submitting written comments by March 18, 2013. In addition, the government also requests comments on the new Code § 6056 employer-reporting requirements and the 90-day waiting period rule.
What Employers Need to Know About the New Proposed Rules of Health Care Reform
PPACA is confusing as it is and staying up with "proposed" and "final" rule clarifications is even harder. We have broken each of the guidelines down further making them easier to understand.
On Nov. 20, 2012, the Department of Health and Human Services issued three sets of proposed rules that provide some of the details on how PPACA will probably unfold. In early December , 2012, they issued two more sets. All rules are still in the “proposed” stage, which means that there may – and likely will – be changes when the final rules are issued.
The proposed rules address:
- Wellness programs under PPACA
- Essential health benefits and determining actuarial value
- Health insurance market reforms
- Benefit and Payment Parameters
- Multi-State Plan Program
Nondiscriminatory Wellness Incentives
The proposed rule largely carries forward the rules that have been in effect since 2006. There still would not be limits on the incentives that may be provided in a program that simply rewards participation, such as a program that pays for flu shots or reimburses the cost of a tobacco cessation program, regardless whether the employee actually quits smoking. Programs that are results-based (which will be called “health-contingent wellness programs”) still would need to meet several conditions, including a limit on the size of the available reward or penalty. Beginning in 2014, the maximum reward/penalty would increase to 50 percent for tobacco nonuse/use and to 30 percent for other health-related standards.
Essential Health Benefits (EHBs) and Actuarial Value
The proposed rule confirms that non-grandfathered plans in the exchanges and the small group market will be required to cover the 10 essential health benefits and provide a benefit expected to pay 60, 70, 80 or 90 percent of expected allowed claims. The proposed rule also says that self-funded plans and those in the large employer market would not need to provide the 10 EHBs; instead, they would need to provide a benefit of at least 60 percent of expected allowed claims and provide coverage for certain core benefits. The proposed rule would consider current year employer contributions to a health savings account (HSA) or a health reimbursement arrangement (HRA) as part of the benefit value calculation.
Market Reforms
The proposed rule confirms that non-grandfathered health insurers (whether operating through or outside of an exchange) would be prohibited from denying coverage to someone because of a pre-existing condition or other health factor. The proposed rule also provides that premiums for policies in the exchanges and individual and small group markets could only vary based upon age, tobacco use, geographic location, and family size and sets out details on how premiums could be calculated.
The “Benefit and Payment Parameters” proposed rule addresses a number of topics. Of particular interest to employers are proposed rules regarding:
- The Temporary Reinsurance Program (TRP): intended to provide funding to cover additional costs associated with covering formerly uninsured individuals who may have unmet health needs. Funding will be provided by assessing all fully insured and self-funded major medical plans.
- Small-business health options program (SHOP) exchanges: The proposed rule provides that, at least through 2016, eligibility for the small-business health option program (SHOP) exchange would be limited to small employers. An employer would be “small” for exchange purposes if it has 100 or fewer employees, although a state could elect to use 50 employees for the limit in 2014 and 2015.
- A timing change for medical loss ratio (MLR) beginning in 2014: The proposed rule provides that MLR payments will be due Sept. 30, beginning in 2014. Beginning next year, if an MLR payment is used to reduce premiums, it would need to be applied to the next premium due after the MLR due date.
- A user fee for those using federally facilitated exchanges: HHS has proposed a user fee of three and one-half percent of premium to cover the cost of running a federally facilitated exchange (FFE) for those states that choose not to run their own exchange.
The “Multi-State Plan Program” proposed rule begins to address the complex topic of multi-state health exchanges. PPACA directs the federal Office of Personnel Management (OPM) to enter into contracts with private health insurance issuers to offer at least two Multi-State Plans (MSPs) through the exchanges. Health insurance issuers who wished to provide an MSP would apply to OPM. OPM would determine which issuers are qualified to become MSP issuers, enter into contracts with the issuers and approve the plans to be offered on exchanges.
Important: These rules are still in the “proposed” stage, which means that there may be changes when the final rule is issued. Employers should view the proposed rules as an indication of how plans will be regulated beginning in 2014, but need to understand that changes are entirely possible.
Choosing A Financial Advisor: Suitability Vs. Fiduciary Standards
Source: investopedia.com
In the investment field, there are two primary parties who are able to offer investment advice to individuals, as well as institutional clients such as pension funds, non-profit organizations and corporations. These parties are investment advisors and investment brokers who work for brokers-dealers. Many clients may consider the investment advice they receive from each party as similar, but there is a key difference that may not be completely understood by the investing public. The difference pertains to two competing standards that advisors and brokers must adhere to, and the distinction has important implications for individuals who hire outside financial assistance. Below is an overview of both parties, the standards each must follow and how the standards that brokers follow can create conflicts between themselves and their underlying customer base. (To learn more, see Paying Your Investment Advisor - Fees Or Commissions?)
TUTORIAL: Brokers And Online Trading
Investment Advisors
According to the Securities and Exchange Commission (SEC), investment advisors provide many services, including assisting individuals and institutions in making financial decisions pertaining to planning for retirement, saving up for a child's college education or planning and developing investment strategies to manage assets and portfolios. They can charge fees for their services, which can be on an hourly basis or a percentage of the assets they manage for clients. Instead, some advisors charge commissions on trades they make for their customers. They may manage individual portfolios, divided up by separate clients, or pooled investments such as hedge funds, pension funds and other related commingled assets. (To learn more about the SEC, read Policing The Securities Market: An Overview Of The SEC.)
Broker-dealers serve many of the same functions as investment advisors in that they help individuals and institutions make important financial decisions. The SEC does make certain distinctions though, such as considering them financial intermediaries who help connect investors to individual investments. It details that a key role is to enhance market liquidity and efficiency, by linking capital with investment products that range from common stocks, mutual funds and other more complex vehicles, such as variable annuities, futures and options.The SEC defines a broker as someone who acts as an agent for someone else, and a dealer as someone who acts as a principal for their own account. An example of an activity a dealer may carry out is selling a bond out of his or her firm's inventory of fixed income securities. The primary income for a broker-dealer are commissions earned from making transactions for the underlying customer.The Fiduciary Standard
Investment advisors are bound to a fiduciary standard that was established as part of the Investment Advisors Act of 1940. They can be regulated by the SEC or state securities regulators, both of which hold advisors to a fiduciary standard that requires them to put their client's interests above their own. The act is pretty specific in defining what a fiduciary means, and it stipulates that an advisor must place his or her interests below that of the client. It consists of a duty of loyalty and care, and simply means that the advisor must act in the best interest of his or her client. For example, the advisor cannot buy securities for his or her account prior to buying them for a client, and is prohibited from making trades that may result in higher commissions for the advisor or his or her investment firm. (To learn more, see The Rise Of The Modern Investment Bank.)It also means that the advisor must do his or her best to make sure investment advice is made using accurate and complete information, or basically, that the analysis is thorough and as accurate as possible. Avoiding conflicts of interest is important when acting as a fiduciary, and it means that an advisor must disclose any potential conflicts to placing the client's interests ahead of the advisor's. Additionally, the advisor needs to place trades under a "best execution" standard, meaning he or she must strive to trade securities with the best combination of low cost and efficient execution. (For more, read Meeting Your Fiduciary Responsibility.)
The Suitability Rule
Broker-dealers only have to fulfill a suitability obligation, which is defined as making recommendations that are consistent with the best interests of the underlying customer. Broker-dealers are regulated by the Financial Industry Regulatory Authority (FINRA) under standards that require them to make suitable recommendations to their clients. Instead of having to place his or her interests below that of the client, the suitability standard only details that the broker-dealer has to reasonably believe that any recommendations made are suitable for clients, in terms of the client's financial needs, objectives and unique circumstances. A key distinction in terms of loyalty is also important, in that a broker's duty is to the broker-dealer he or she works for, not necessarily the client served. (For more on FINRA's role in the financial industry, read FINRA: How It Protects Investors or check out the background of firms and investment professionals on FINRA’s BrokerCheck)
Other descriptions of suitability include making sure transaction costs are not excessive or that are recommendation is not unsuitable for a client. Examples that may violate suitability include excessive trading, churning the account simply to generate more commissions or frequently switching account assets to generate transaction income for the broker-dealer. Also, the need to disclose potential conflicts of interest is not as strict a requirement for brokers; an investment only has to be suitable, it doesn't necessarily have to be consistent with the individual investor's objectives and profile.
Potential Conflicts
The suitability standard can end up causing conflicts between a broker-dealer and underlying client. The most obvious conflict has to do with fees. Under a fiduciary standard, an investment advisor would be strictly prohibited from buying a mutual fund or other investment, because it would garner him or her a higher fee or commission. Under the suitability requirement, this isn't necessarily the case, because as long as the investment is suitable for the client, it can be purchased for the client. This can also incentivize brokers to sell their own products ahead of competing products that may be at a lower cost.
The broker-dealer model also has other motivations in addition to serving its underlying client base. In early 2011, "Fortune" magazine described the combination of brokers and a firm with investment banking capabilities as an "engine to distribute product brought to market by the investment bank," through the brokers selling suitable investments to clients. For better or for worse, it is a condition that clients must be aware of when employing the services of a broker for investment services and advice.
The Bottom Line
With cost being one of the primary determinants of investment performance over the long term, the fiduciary standard appears to have the upper hand in terms of providing a benefit for underlying clients. Given the more stringent stipulations for investment fiduciaries, there is little question that the fiduciary standard better protects individual and institutional investors, than the suitability standard. Federal securities laws consider investment advisors fiduciaries, but this does not apply to broker-dealers across the board. Overall, it is best for individuals to find an advisor who will place his or her interests below that of the client. An investment advisor has no choice to fulfill this fiduciary stipulation, and the client may also be able to find brokers willing to adhere to this higher standard. (For more on choosing an advisor, read Shopping For A Financial Advisor.)
PPACA’s 2013 provisions near implementation
Source: Benefitspro.com
By: Katie Kelley
Apart from the latest debates on political opinions over health care changes, it’s important to know what necessary steps are required to get HR and their employees on the right track for 2013.
The Patient Protection and Affordable Care Act outlines changes set to kick in over several years. Benefits managers and human resource advisors are nearing the implementation of the 2013 provisions, and while these changes might not be as newsworthy as the 2014 provisions that are dominating headlines, they do hold credence to employees and their health plans.
According to Troy Filipek, a principal and consulting actuary for Milliman, the best way to prepare for compliance next year is to employ contingency planning as well as develop open lines of communication with employees.
Filipek says employers need to be proactive for 2013 while thinking ahead for 2014.
“There are a lot of changes that are occurring, and there are things employers can benefit from just by considering these options. Talk to your advisors and obviously if you do decide to make a change, talk to your employees or your retirees because with anything you make changes to, it’s important that your people are well advised on it, why you’re doing it and how it’s going to impact them.”
Sharon Cohen, a principal at Buck Consultants and an expert in pretax benefits and health care, shared a similar viewpoint, but also noted that it’s imperative for employers and benefits managers continue with what’s required by law right now—despite any changes that may still occur. “The provisions will start taking effect and the government is moving forward. I wouldn’t count on this all going away before I would take action.”
Medicare subsidy taxation
The major PPACA provision impacting Medicare Part D closes the ‘donut hole’ or gap between coverage limits and out-of-pocket spending on the cost of prescription care, but the law also changes the retiree drug subsidy program.
“The big change for 2013 with the RDS program is that in the past, from 2006 forward, the allowance that these employers receive from the government for the subsidies used to be non-taxable income,” Filipek says. “That has changed since the enactment of the [PPACA].”
Now, Filipek explains, the money that employers receive from the government for these subsidies is subject to taxation.
“It’s a pretty big change,” he says. “A lot of employers have already felt the impact of it because once the law passed, based on the accounting standards, you had to recognize the future impact of that in your financial statements.”
Options include continuing coverage and working with the newly taxed subsidies or dropping coverage and allowing retirees to enroll in individual part D plans. Additionally, Filipek says, employers can maintain group coverage and work with a pharmaceutical benefit manager or health plan in the Part D program to develop a custom benefits package through a Part D Employer Group Waiver Plan plus secondary wrap plan design, which are plan options gaining traction in the marketplace.
Regardless of what decision is made, it’s imperative that both brokers and HR professionals “make sure it’s seamless for the retiree and easy for them to understand,” Filipek says.
“It’s important to communicate with the retirees because these are not people who are coming into the workplace every day where it’s easier to communicate with them. You have to find ways for outreach to them and their spouses.”
The RDS program is designed for employers to continue offering prescription drug coverage to retirees since Part D went into effect six years ago. The government provides a subsidy to employers who maintained a benefit rather than dropping coverage and having their retirees sign up for Medicare Part D individually.
“That program has been what a lot of employers have done since 2006 when Part D started. They had to make a decision to continue offering pharmacy coverage or end their coverage and have retirees sign up for Part D,” Filipek says. “Most opted to continue coverage and get the Retiree Drug Subsidy but that is starting to change with some of the PPACA provisions taking effect.”
FSA caps
HR advisors will need to prepare and communicate newly implemented salary reduction contributions regarding flexible spending accounts that go into effect next year, which impose a cap of $2,500 on these accounts.
“Any employer that has a calendar year beginning Jan. 1, will have to have implemented that provision,” Cohen says. “The salary reduction dollars are capped at $2,500 though, right now, with open enrollment periods typically starting in October and in November—that is a communication that employers who previously had a higher maximum on their FSAs now need to communicate to their employees.”
It’s important to note that only a small percentage of individuals who have FSAs made available to them actually use them. Regardless, employers must inform employees of the change and how it could affect their health coverage long term.
“This is a change that now needs to be communicated to employees,” Cohen says.
But there will be a grace period on contributions that go unused and HR directors will have the opportunity to amend plans through the end of 2014, the limit will be necessary beginning Jan. 1.
“For benefits managers, it would have been last year or the beginning of this year that they would have needed to make design changes to accommodate this,” Cohen says. For those who run on a different plan year other than January, the design considerations must be determined now in order to offer concrete options for open enrollments, she says.
W-2 insurance reporting
The PPACA requires that beginning in 2013, W-2 reporting will need to list employer-sponsored health coverage for the calendar year of 2012. Although this is not a 2013 provision, employees will notice the changes beginning in January of next year, and it’s necessary for HR to convey this to individuals.
“Employees have concern that their tax-free health coverage will be taxable, which will not be the case,” Cohen says. “The communications challenge for employers is to now let employees know that this is just information reporting and is not going to be taxed.”
This provision affects employers of larger companies with 250 or more employees, but those who receive life insurance as a retiree are also required to report their expenses as well.
SBC notification and exchanges
Beginning Sept. 23, during open enrollment periods, and continuing through next year, employers were required to offer employees a four-page summary benefits coverage of the packages made available to an employee for a company’s group health plan.
“[This is] a four page document that tells individuals what benefits are offered under the plan, how much they cost and it has to be in a uniform format that the government has put out,” Cohen says. “The idea is that it makes it easier for individuals who are purchasing coverage to compare the different coverages.”
In order to become compliant with this, it’s important for employers and HR to work with their benefits managers and access the guidance that has been introduced by government agencies including the Internal Revenue Service the Department of Labor, and the U.S. Department of Health and Human Services.
“They have provided templates and instructions,” Cohen says. “This requirement is for health plans large or small.” Cohen also notes this will be the same format of the state insurance exchanges, when they are up and running in 2014.
The state insurance exchanges also require contingency planning for the following year of 2014, when they are established within each state. Beginning next year it’ll be necessary to offer employees notice of these state insurance exchanges, by March 1, in compliance with the DOL guidance that takes precedent in this notification.
“States are still considering if they will adopt the exchange or if the federal government will run the exchange for them,” she says. “They will very soon have to put out some guidance, but right now we don’t have specifics around the exchanges.”
Cohen notes there’s no preparation necessary on behalf of HR or brokers for this provision; it’s simply wait-and-see.
Medicare wage expense
The Federal Insurance Contribution Act Medicare tax rate will increase among individuals with earnings greater than $200,000 and $250,000 for couples filing joint returns. This provision was set in place as a revenue-raising activity. It’s dependent on the employer to collect the tax of 0.9 percent, but this “will not increase the employer’s share of Medicare tax,” according to Sam Hoffman, a partner at Foley and Lardner, who specializes in health care.
“What employers really have to focus on is to set up the payroll system to increase the tax for employees who meet these limits,” Hoffman says. “Most people have thought it through.”
Hoffman doesn’t believe there’s a great need for strong communications campaigns because the 0.9 percent increase will be noted on pay stubs for individuals affected by this. However, employers should have prepared their payroll systems if they haven’t done so already to ensure this provision is met beginning next year. HR also should prepare themselves for questions that could arise in this arena.
“It is the responsibility of the employer to increase the withholdings of individuals earning more than $200,000 a year,” Cohen says. “Typically, the employer’s payroll system will need to be programed for that increase. It’s not so much the responsibility of HR as it is payroll, but there is a communications issue.”
For preparation purposes, Cohen echoes a strong necessity for both HR and brokers to be completing preparation as soon as possible.
“Most of these things, if they haven’t been implemented, they should be hurrying now,” she says.
Tax deduction limits
The income-tax deductions for health expenses sit at 7.5 percent of the adjusted gross income, but as of next year this will be raised to 10 percent of the AGI. Although, during a four year period of 2013 to 2016, those turning 65 (and their spouses) won’t be subject to this provision.
While this scarcely affects employers and HR, it will largely affect individuals and their taxes, which can require benefits managers to step in and work with individuals on a better understanding of this provision.
“This is more for individuals who file on an individual basis,” Cohen says. “It doesn’t normally affect an employer’s group health plan.”
Substantial adjustments have been taken in the form of reflections of these soon-to-be taxed subsidies. “Starting in 2013, it will be a practical effect that these moneys are going to be taxed,” Filipek says.Hoffman also paralleled a related sentiment that if you’re an employee under a group health plan, this is irrelevant, however, “if you buy your own health insurance then you’ll need to notate the cost to yourself and how to itemize those deductions.”
He notes that a lot of brokers, advisors and even employers are currently in the process of reevaluating their options for offering retirees prescription drug coverage. As far as what steps are necessary to take in order to be prepared for the coming year’s changes, Filipek feels it’s important for employers and their advisors to simply understand that there are a variety of choices available.
3(21) Fiduciaries More Popular Among Plan Sponsors
By: Paula Aven Gladych
Source: BenefitsPro.com
Plan sponsors are increasingly looking for investment advisors who can shoulder some of the fiduciary burden related to offering employee retirement plans. More frequently they are turning to companies that offer fiduciary coverage under section 3(21)(A) of the Employee Retirement Income Security Act.
“There’s definitely an uptick in having an independent entity sign off as a fiduciary along with the plan sponsor,” said Chris Reagan, managing director and practice leader for Mesirow Financial’s Retirement Plan Advisory Group. The number of plan sponsors interested in such an advisor has increased as the number of class action lawsuits filed by plan participants against their retirement plans has risen, he added.
In February 2008, the U.S. Supreme Court ruled in LaRue v. De Wolff, Boberg & Associates, Inc. that plan participants may take action against plan sponsors. Many lawsuits followed, which has scared many advisors away from becoming fiduciaries, he said.
“If you are a plan sponsor and a fiduciary to the plan, you have a duty to act in the best interest of your participants,” Reagan said. “You need to be a prudent expert. If you are not, you need to go out and find that expertise. In today’s environment, a 3(21) investment fiduciary is another expert that a plan sponsor can lay off or share some responsibility and liability with.”
Under the Employee Retirement and Investment Security Act, section 3(21)(A) states that a person is a fiduciary with respect to a plan to the extent he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or he has any discretionary authority or discretionary responsibility in the administration of such plan.
“Not everyone in the marketplace will serve as a fiduciary. Some only act as a broker and won’t sign on as a fiduciary,” Reagan said. Most plan sponsors prefer 3(21) fiduciaries over 3(38) fiduciaries, he said. The difference between the two is that a 3(38) investment advisor “has discretion so they can act without really informing the plan sponsor. The plan sponsor has charged them with the duty to oversee the plan, whereas a 3(21) does not have discretion. They make recommendations but refer to the committee for final decisions,” he said.
Mesirow Financial acts as a 3(21) fiduciary for plan sponsors. “As a registered investment advisor and a fiduciary, we need to act in the best interest of a plan and its participants. Typically, we negotiate a fee upfront with our clients. We don’t work on a commission basis. We are not paid on product. It doesn’t matter to us who chooses what. It is all the same to us. What provider they are with, doesn’t matter. As long as we are working for the plan sponsor we are acting in the best interest of the plan,” Reagan said.
Transamerica Retirement Services announced in late October that it was partnering with the Investment Strategies group at Mesirow Financial to offer a new ERISA Section 3(21) fiduciary service to help retirement plan advisors and sponsors mitigate investment fiduciary risk.
As part of this service, Mesirow Financial is providing plan-level investment advice related to the selection and monitoring of the plan’s investment lineup. The company will act as an investment fiduciary to the plan along with the plan sponsor, who maintains ultimate control over the plan’s investment menu.
“We offered it both at the request of our plan sponsor clients and the schematic and trend in the industry to have somebody other than a plan sponsor to act as a fiduciary alongside plan sponsors,” said Jason Crane, senior vice president and national sales director for Transamerica Retirement Services. “Many of our distribution partners, our broker/dealer partners, allow their brokers to act in a fiduciary capacity. Many of our historic partners have chosen not to allow their advisors to act in a fiduciary capacity. In this instance, it acts as protection for our plan sponsors.”
Until the U.S. Department of Labor re-proposes its definition of “fiduciary” in 2012, many advisors are taking a wait-and-see attitude, Crane said. The partnership with Mesirow Financial is a “great offering for our clients who will not work in that capacity. [Mesirow] will review our portfolios and distill them down to an elite list. Those funds are scrubbed through Mesirow’s due diligence process.”
He added that the nice thing about the 3(21) service is that “Mesirow will defend any and all claims within its fiduciary duty.”
Transamerica’s financial advisors who have chosen not to act in a fiduciary capacity will remain “key contacts to our clients. They can help clients to mitigate their fiduciary risk without taking on a stated fiduciary capacity themselves. Our financial advisors can recommend a fund lineup using Mesirow’s elite list or they can suggest that a plan sponsor adopt one of three prefabricated portfolios constructed by Mesirow Financial based on the plan’s demographics,” Crane said. As long as a portfolio is constructed of Mesirow’s elite funds, the plan sponsor will get that additional fiduciary mitigation.
A July 2011 report by Diversified Investment Advisors predicted that by 2015, “advisors will no longer be in a position to receive compensation unless they assume ERISA Section 3(21) fiduciary responsibilities. This differs from the current regulatory framework, which allows plan sponsors to choose from other models, including broker/dealer, consultant and advisor models.”
The report, “Prescience 2015: Expert Opinions on the Future of Retirement Plans,” stated that the “need for ongoing holistic service from a third party is leading many plan sponsors to opt for a professional retirement plan advisor that services plans on a fee or retainer basis.”
Joe Masterson, Diversified senior vice president, said in a statement: “The emergence and organization of professional retirement plan advisors will have a profound impact on our business over the next five years. These professionals are dedicated to the retirement plans business, and therefore are well-suited to understanding plan compliance, designing appropriate fund arrays, positively impacting plan design and helping participants achieve funded retirements.”
David Wray, president of the Plan Sponsor Council of America, said that new rules regarding who is and isn’t a fiduciary will “clarify that the people helping shoulder the burden are actually doing it.” Most plan sponsors believe they have been getting that level of commitment from their advisors, he said. “Some plan sponsors would like to hire someone and actually have them make investment decisions for them and some want them to advise them on helping them make the decisions, but in both cases, the person helping the plan sponsor should be a fiduciary.”
Wray added that, “it’s best to have an advisor have their priority be the benefit of the participants rather than the interest of their employer.”
Wellness Training on How to Enjoy New Year's Spirits Responsibly
Source: safetydailyadvisor.blr.com
Impaired driving is a life-and-death issue all year around. But it's never more so than during the holiday season when many holiday celebrations involve alcohol consumption. And one of the times alcohol consumption is a big problem on the road is around New Year's. Today's Advisor gives you tips for wellness training on this subject.
We may not want to think of the dangers of drunk and drugged driving during this festive season, because we want to be full of joy and goodwill, but we have to be realistic in order to enjoy the season safely. Consider the statistics listed under "Why It Matters."
Happy New Year!
If you're throwing a New Year's eve or New Year's Day party this year, consider serving this fruity nonalcoholic beverage at your holiday bash:
Pomegranate Ginger Spritzer
(Source: SparkRecipes - https://recipes.sparkpeople.com/)
Combine:
Pomegranate Juice, 16 oz bottle
Ginger Ale, 12 oz bottle
Juice of 2 limes
Serve chilled in wine goblets. Serves 4.
If you are serving alcohol, be a responsible party host by following this advice from The National Commission Against Drunk Driving (NCADD):
- Urge your guests to designate a driver ahead of time.
- Collect each guest’s keys on arrival. Know the condition of your guests before returning their keys at the end of the party.
- Plan activities so that the focus isn't just on drinking.
- Serve a variety of foods and include nonalcoholic beverages.
- If serving a punch containing alcohol, mix with a noncarbonated base like a fruit juice. Carbonated bases speed up the absorption of alcohol into the bloodstream.
- Designate one person to serve as the bartender. This will help control the number of drinks and the amount of alcohol in each drink.
- Stop serving alcohol 60 to 90 minutes before the party’s over. Bring out dessert, coffee, and other nonalcoholic drinks.
- Arrange a ride home for guests who’ve overindulged or invite them to spend the night.
- Get Home Safely
- If you're going to drink at New Year's celebrations that someone else is hosting, take these precautions to get home safely:
- Designate a driver ahead of time. Remember, a designated driver is a nondrinking driver.
- Take a cab or public transportation.
- Make a reservation and spend the night.
- Consume food, sip your drinks, and alternate with nonalcoholic beverages.
- Ask your server about a ride home if you've been drinking to the point of impairment.
Why It Matters
According to the Occupational Safety and Health Administration, alcohol use is involved in 40 percent of all fatal motor vehicle crashes.
The NCADD reports that on an average day, 46 people die in alcohol-related crashes.
It’s estimated that 3 in every 10 Americans will be involved in an impaired-driving-related crash some time in their life.
Alcohol involvement in vehicle crashes is highest at night (9 p.m. to 6 a.m.) and on weekends and holidays.
Americans are injured and killed on the road in record numbers during the holiday season, largely because of impaired driving.
According to NCADD, drunk driving costs Americans more than $50 billion each year in economic losses.
Financial Advice
Although employers usually aren't employees’ first source of financial information, they are regarded as valuable resources for retirement help by workers, according to a new study.
Two-thirds of adults in a recent TIAA-CREF survey said they trust the financial advice provided by their employer. Additionally, one-fifth of respondents said they have trouble finding useful financial information.
Employers Sample New Ideas to Chop Costs
Self-insured employers increasingly are testing new plan designs and tougher negotiation tactics with providers in hopes of discovering new and better ways to tamp down health care costs.
The first step for employers, Rost said, is to examine their current plan and determine areas of failure. Once data are gathered on who is using what services (and how they're using them), employers can work on building the best network and designing incentives that will guide workers to providers who understand the value-based philosophy and will deliver the best care at the best price.
Beyond the plan design, self-insured employers can take a number of other steps to make their health plan better, according to Karrie Andes, a senior benefits manager for PGi. In a recent article for Employee Benefit News, Andes offers a number of tips to help self-funded companies secure the best plan, including:
- Try to negotiate rates upfront for two or three years
- Be aware of any limits on claim audits
- Explore savings by carving out disease management, pharmacy benefits and other features
- Look for a transparent pharmacy model, which allows the pharmacy benefit manager to pass full rebates to your company
Although managing a self-funded plan can be a challenge, the concept has its benefits, according to a recent report by Kaiser Health News. Self-funding can offer significant savings for companies by reducing administrative costs and allowing them to offer a single plan across state lines, the report noted.
Office Holiday Parties Are Back, and Just as Weird as Ever
By Christopher Bonanos
Source: Businessweek.com
The corporate holiday party is a night when everyone’s supposed to pretend there are no organizational charts, no office hierarchies. Interns can kick back with the bosses—and theoretically do more intimate things with them—and the next morning everyone’s just supposed to snap back into normal behavior, hangovers be damned.
During the boom years, startups and other profligate spenders would blow colossal amounts on these events, which were as much about chief executive ego and coolness as employee morale. That’s still happening to some extent: In 2010, the Blackstone Group (BX) rented out the Sackler Wing of the Metropolitan Museum of Art; the party centered around cutting a mammoth cake with the word “accountability” emblazoned on top. In 2011, Bridgewater Associates, a hedge fund famous in part for its parties, rented out a 10,000-seat arena for a holiday bash; while details were kept under wraps, past events have included mud wrestling. Billionaire Paul Tudor Jones, of Tudor Investment, puts on an annual light show (the “Jones-a-Palooza”) synchronized to music at his estate in Greenwich, Conn. Are the parties any less awkward for their extravagance? Not really. Even the greenest 22-year-old attendees sense they’re witnessing something unsustainable—a lot of someone’s venture capital being tossed into a fire pit.
In the cold December after the financial crisis of 2008, many companies decided to go the other way, skipping the party entirely. The employee-retention rationale kind of goes out the window when jobs are scarce and nobody is likely to leave anyway. Above the Law, a popular blog about the legal world, recently opined that big firms would be better off forgoing their joyless parties and parceling out the entertainment budget in the form of $100 gift cards to employees. Ho, ho, ho.
Some years back, I worked for a corporation whose stock price was slowly sinking, and I watched each December as the party budget withered away. First, spouses were knocked off the list; then many unrelated divisions of the company were all invited to one shared event; then, finally, the thing was canceled altogether.
Holiday parties are back, if not quite in full force. Even now that the economy is marginally better, throw a party that’s one iota nicer than your staff might expect, and it’s certain that some Grinch will mutter, “I’d rather have had a raise this year.” Battalia Winston, a firm that does an annual survey of corporate merriment, is reporting the first uptick since the crash: 91 percent of companies plan to give a party this year, the most since 2007 and a big bump from the 74 percent figure (a 25-year low) of 2011. Anthony Patrone, co-owner of a Brooklyn party-planning company called Ultra Events & Staffing, says he’s definitely noticed an improvement: “December’s always busy, but many more businesses are asking about rates this year. People are saying ‘enough is enough.’ ” David Stark, a top event planner who runs David Stark Design & Production in Brooklyn, also points to the microtrend of “corporations giving their money to Sandy relief instead of throwing the blowout bash.” Do-gooderism is a neat inoculation against employee grumpiness: They can’t complain about that.
Many parties this year will hit a middle ground between opulent and, well, nonexistent, but that won’t make them any less strange. Consider those held in the office itself. Getting hammered on the premises feels transgressive, whether it is or not. There’s actual science behind that: One British study led by the school of psychology at the University of Birmingham found that drinking in an unusual setting—the conference room, say, as opposed to your local pub—does in fact get you drunker, because your brain compensates for lowered inhibition better in familiar surroundings.
Then there are the hookups. Stark recalls one big corporate event at which he encountered “sex in a bathroom, with vomiting right before they vacated the room.” There’s also the experience of learning that your co-worker, to whom you have barely spoken two words all year, is getting a divorce/having money problems/hates the boss. A survey by Caron Treatment Centers, a drug- and alcohol-treatment service, reveals that fully one quarter of all partygoers have heard someone overshare. Puke notwithstanding, isn’t this all starting to sound like a bit of a blast?
The best thing that ever happened to a holiday party, in my experience, turned out to be its cancellation. After the old employer mentioned above turned austere, our boss said, “Oh, I’ll host something myself,” and had us all over to her house. One senior staffer mixed up gallons of very strong margaritas; three of us prepped hundreds of hors d’oeuvres. The outsiderness of the thing gave it back to us. It was no longer a line in the budget, and an assistant finished out the evening pantsless and asleep in the bathtub. It was the weirdest, warmest party—work-related or not—I can remember attending.
Health insurance methods to shift in post-PPACA world
By Brian M. Kalish
Source: eba.benefitnews.com
With health reform moving full steam ahead, most employers will continue to offer employee coverage, but will make alterations to how they provide it, said a speaker at the Workplace Benefits Transitions conference Tuesday.
An overwhelming majority of employers plan to stay in the health care business, said Cheryl Larson, vice president of the Midwest Business Group on Health, whose members represent senior HR benefits professionals who annually spend more than $4 billion on health care. Her group’s research shows that only 4% of members plan to drop health coverage. They will stay in the game for three main reasons, she said, as they:
- Don’t want to deal with the penalty for not offering coverage;
- Don’t want to “gross up” employer salaries to allow them to buy coverage on their own; and
- Need to stay competitive.
Speaking in the opening keynote at the conference co-sponsored by Employee Benefit Adviser in Chicago, Larson noted, however, that there will be some key differences come 2014, including an exit strategy of dropping coverage for retirees (53%) and part-time employees (33%), according to a National Business Group on Health survey.
In practice, it will be interesting to see what employers actually do, Larson said. While they say publically they are not walking away from providing health care, privately “in the boardroom they will say, ‘If so and so goes, so will we.’ That’s scary,” she said.
Larson also predicted an increased focus on consumerism and wellness. “Ten years ago, that was not important to employers,” she said. “I’ve been a real passionate person about engaging employees and their families with knowledge and information. We’ve forgotten about teaching people how to deal with navigating the health care system.”
An MBGH survey further found that employers of all sizes plan to offer consumer-directed health plans, such as an HSA/HRA option. Of those surveyed, among small group employers – 200 or fewer employees – 50% plan to offer a form of CDHP, for large groups – more than 5,000 — that increases to 100%. Further, employers of all sizes will be shifting their dental and vision coverage to a voluntary offering by 2017-2018. Specifically, 59% of small and 49% of large employers plan to do so.