HSAs could play bigger role in retirement planning
Did you know that ACA repeal could have and effect on health savings plans (HRA)? Read this interesting article from Benefits Pro about how the repeal of the ACA might affect your HRAs by Marlene Y. Satter
With the repeal of the Affordable Care Act looming, one surprising factor in paying for health care could see its star rise higher on the horizon—the retirement planning horizon, that is. That’s the Health Savings Account—and it’s likely to become more prominent depending on what replaces the ACA.
HSAs occupy a larger role in some of the proposed replacements to the ACA put forth by Republican legislators, and with that greater exposure comes a greater likelihood that more people will rely on them more heavily to get them through other changes.
For one thing, they’ll need to boost their savings in HSAs just to pay the higher deductibles and uncovered expenses that are likely to accompany the ACA repeal.
But for another—and here’s where it gets interesting—they’ll probably become a larger part of retirement planning, since they provide a number of benefits already that could help boost retirement savings.
Contributions are already deductible from gross income, but under at least one of the proposals to replace the ACA, contributions could come with refundable tax credits—a nice perk.
Another proposal would allow HSA funds to pay for premiums on proposed new state health exchanges without a tax penalty for doing so—also beneficial. And a third would expand eligibility to have HSAs, which would be helpful.
But whether these and other possible enhancements to HSAs come to pass, there are already plenty of reasons to consider bolstering HSA savings for retirement. As workers try to navigate their way through the uncertainty that lies ahead, they’ll probably rely even more on the features these plans already offer—such as the ability to leave funds in the account (if not needed for higher medical expenses) to roll over from year to year and to grow for the future, and the fact that interest on HSA money is tax free.
But possibly the biggest benefit to an HSA for retirement is the fact that funds invested in one grow tax free as well. If you can leave the money there long enough, you can grow a sizeable nest egg against potential future health expenses or even the purchase of a long-term care policy. And, at age 65, you’re no longer penalized if you withdraw funds for nonapproved medical expenses.
And if you don’t use the money for medical expenses in retirement, but are past 65, you can use it for living expenses to supplement your 401(k). In that case, you’ll have to pay taxes on it, but there’s no penalty—it just works much like a tax-deferred situation from a regular retirement account.
See the original article Here.
Source:
Satter M. (2017 January 16). HSAs could play bigger role in retirement planning [Web blog post]. Retrieved from address https://www.benefitspro.com/2017/01/16/hsas-could-play-bigger-role-in-retirement-planning?ref=hp-news
DOL and IRS want a closer look at your retirement plan
Are you worried that your company's retirement plan is not up to government standards? If so take a look at this article from HR Morning about what the DOL and IRS are looking for in retirement plans by Jared Bilski
Two of the most-feared government agencies for employers — the DOL and IRS — have decided there’s a real problem with the way retirement plans are being run, and they’re ramping up their audits to find out why that is.
In response to the many mistakes the agencies are seeing from retirement plan sponsors, the IRS and DOL will be increasing the frequency of their audits.
What does that mean for you? According to experts, plan sponsors can expect the feds to dig deep into the minute operations of plans. That means the unfortunate employers who find themselves in the midst of an audit can expect to be asked for heaps of plan info.
Linda Canafax, a senior retirement consultant with Willis Towers Watson, put it like this:
“The DOL and IRS are truly diving deep into the operations of the plans. We have seen a deeper dive into the operations of plans, particularly with data. Plans may be asked for a full census file on the transactions for each participant. Expect the DOL and IRS to do a lot of data mining.”
What to watch for
Ultimately, it’s impossible to completely prevent an audit. But employers can — and should — do certain things to safeguard themselves in the event the feds come knocking.
First, a self-audit is always a good idea. It’s always better for you to discover any problems before the feds do. Next, you’ll want to be on the lookout for the types of errors that can lead the feds to your workplace in the first place.
The most common errors the IRS and the DOL are looking for:
- Untimely remittance of employee deferrals (i.e., contributions)
- Incorrect compensation definition (plan documents dictate which types of comp employees are eligible to contribute from)
- Not following the plan’s own directives, and
- Not having a good long-term system (20-30 years out) for tracking and paying benefits to vested participants.
See the original article Here.
Source:
Bilski J. (2017 January 6). DOL and IRS want a closer look at your retirement plan[Web blog post]. Retrieved from address https://www.hrmorning.com/dol-and-irs-want-to-take-a-closer-look-at-your-retirement-plan/
How to encourage increased investment in financial wellbeing
Is financial wellness an important part of your company culture? By promoting financial wellness among your employees', employers can reap the benefits as well. Check out this great article from Employee Benefits Advisor about the some of the effects that promoting financial wellness can have. By Cort Olsen
Financial wellness has come to the forefront of employers’ wellbeing priorities. Looking back on previous years of participation in retirement savings programs such as 401(k)s, employers are not satisfied with participation, an Aon study shows.
As few as 15% of employers say they are satisfied with their workers’ current savings rate, according to a new report from Aon Hewitt. In response, employers are focused on increasing savings rates and will look to their advisers to help expand financial wellbeing programs.
Aon surveyed more than 250 U.S. employers representing nearly 9 million workers to determine their priorities and likely changes when it comes to retirement benefits. According to the report, employers plan to emphasize retirement readiness, focusing on financial wellbeing and refining automation as they aim to raise 401(k) savings rates for 2017.
Emphasizing retirement readiness
Nearly all employers, 90%, are concerned with their employees’ level of understanding about how much they need to save to achieve an adequate retirement savings. Those employers who said they were not satisfied with investment levels in past years, 87%, say they plan to take action this year to help workers reach their retirement goals.
“Employers are making retirement readiness one of the important parts of their financial wellbeing strategy by offering tools and modelers to help workers understand, realistically, how much they’re likely to need in order to retire,” says Rob Austin, director of retirement research at Aon Hewitt. “Some of these tools take it a step further and provide education on what specific actions workers can take to help close the savings gap and can help workers understand that even small changes, such as increasing 401(k) contributions by just two percentage points, can impact their long-term savings outlook.”
Focusing on financial wellbeing
While financial wellness has been a growing trend among employers recently, 60% of employers say its importance has increased over the past two years. This year, 92% of employers are likely to focus on the financial wellbeing of workers in a way that extends beyond retirement such as help with managing student loan debt, day-to-day budgeting and even physical and emotional wellbeing.
Currently, 58% of employers have a tool available that covers at least one aspect of financial wellness, but by the end of 2017, that percentage is expected to reach 84%, according to the Aon Hewitt report.
“Financial wellbeing programs have moved from being something that few leading-edge companies were offering to a more mainstream strategy,” Austin says. “Employers realize that offering programs that address the overall wellbeing of their workers can solve for myriad challenges that impact people’s work lives and productivity, including their physical and emotional health, financial stressors and long-term retirement savings.”
The lessons learned from automatic enrollment are being utilized to increase savings rates. In a separate Aon Hewitt report, more than half of all employees under plans with automatic enrollment default had at or above the company match threshold. Employers are also adding contribution escalation features and enrolling workers who may not have been previously enrolled in the 401(k) plan.
“Employers realize that automatic 401(k) features can be very effective when it comes to increasing participation in the plan,” Austin says. “Now they are taking an automation 2.0 approach to make it easier for workers to save more and invest better.”
See the original article Here.
Source:
Olsen C. (2017 January 16). How to encourage increased investment in financial wellbeing [Web blog post]. Retrieved from address https://www.employeebenefitadviser.com/news/how-to-encourage-increased-investment-in-financial-wellbeing?feed=00000152-1377-d1cc-a5fa-7fff0c920000
Corporate pension plan funding levels flatline in 2016
Great article from Employee Benefits Advisor about Corporate pension plan funding by Phil Albinus
The stock market may have soared after the news that Donald Trump won the White House and plans to cut taxes and regulations, but the pension funded status of the nation’s largest corporate plan sponsors remains stuck at 80%. This figure is roughly unchanged for 2014 and 2015 when the status rates were 81%, according to a recent analysis conducted by Willis Towers Watson.
In an analysis of 410 Fortune 1000 companies that sponsor U.S. defined benefit pension plans, Willis Towers Watson found that the pension deficit is projected to have increased $17 billion to $325 billion at the end of 2016, compared to a $308 billion deficit at the end of 2015.
“On the face of it, [the 2016 figures of 80%] looks pretty boring. For the last three years the funding levels were measured around 80% and it doesn’t look that interesting,” says Alan Glickstein, senior retirement consultant for WTW. “But one thing to note is that 80% is not 100%. To be that stagnant and that far away from 100% is not a good thing.”
In fact, 2016’s tentative figures, which have yet to be finalized, could have been worse.
According to Glickstein, the 2016 figure hides “some pretty dramatic movements” that occurred during the unpredictable election year. “Prior to the election and due to the significant changes to equities and other asset values after the election, this number would have been more like 75%” if Trump had not won, he says.
“That is the interesting story because we haven’t been as low as 75% really ever in the last 20 years,” Glickstein says.
Fortune 1000 companies contributed $35 billion to their pension plans in 2016, according to the WTW research. This was an increase compared to the $31 billion employers contributed to their plans in 2015 but still beneath the contribution levels from previous years. “Employer contributions have been declining steadily for the last several years partly due to legislated funding relief,” according to Willis Towers Watson.
Despite these dips, total pension obligations increased from $1.61 trillion to $1.64 trillion.
Why are U.S. companies slow to fund their own pension plans, especially when in 2006 and 2007 the self-funded levels were 99% and 106% respectively?
“In prior years, plan sponsors put lots of extra contributions into the plans to help pay off the deficit, and investment returns have been up and the equities the plans have invested in have helped with that we haven’t been able to move this up above 80%,” Glickstein says.
That said, many American corporations are sitting on significant amounts of cash but appear not to be putting money into their retirement plans.
“We have seen companies contributing more to the plans in the past, but each plan is different and each corporation has their own situation. Either a company is cash rich or it is not,” Glickstein says.
“With interest rates being low and the deductions company get for their contributions, for a lot of plan sponsors it has been an easy decision to put a lot of money into the plan,” he says.
“And there are plenty of rewards for keeping premiums down by increasing contributions.”
Further, a new Congress and president could have an impact on corporate contributions especially if new corporate tax codes are enacted.
The broad initiatives of a new administration in the executive branch and legislative branch will have an impact, says Glickstein.
“With tax reforms, the general thrust for corporations and individuals is we are going to lower the rates and broaden the underlying tax base. So for pensions, the underlying tax rates for pensions is probably going to be lower and if [Congress gets] tax reforms done and they lower the corporate rate in 2017, and even make it retroactive,” Glickstein speculates. He predicts that some plan sponsors will want to contribute much more to the 2016 tax year in order to qualify for the deductions at the higher rates while they still can.
“There is a short-term opportunity potentially to put more money in now and capture the higher deduction once tax reform kicks in,” says Glickstein. “And with an 80% funded status, there is plenty of room to put more money in than with an overfunded plan.”
See the original article Here.
Source:
Albinus P. (2017 January 9). Corporate pension plan funding levels flatline in 2016[Web blog post]. Retrieved from address https://www.employeebenefitadviser.com/news/corporate-pension-plan-funding-levels-flat-line-in-2016?feed=00000152-1377-d1cc-a5fa-7fff0c920000
Employees putting billions more than usual in their 401(k)s
Interesting article from BenefitsPro about employee's increased input into their 401(k)s by Ben Steverman
(Bloomberg) -- Saving for retirement requires making sacrifices now so your future self can afford to stop working later. Someday. Maybe.
It’s not news that Americans aren’t saving enough. The typical baby boomer, whose generation is just starting to retire, has a median of $147,000 in all of his retirement accounts, according to the Transamerica Center for Retirement Studies.
And if you think that’s depressing, try this on: 1 in 3 private sector workers don’t even have a retirement plan through their job.
But the new year brings with it some good news: If people do have a 401(k) plan through their employer, there’s data showing them choosing to set aside more for their later years.
On average, workers in 2015 put 6.8 percent of their salaries into 401(k) and profit-sharing plans, according to a recent survey of more than 600 plans. That’s up from 6.2 percent in 2010, the Plan Sponsor Council of America found.
An increase in retirement savings of 0.6 percentage points might not sound like much, but it represents a 10 percent rise in the amount flowing into those plans over just five years, or billions of dollars. About $7 trillion is already invested in 401(k) and other defined contribution plans, according to the Investment Company Institute.
If Americans keep inching up their contribution rate, they could end up saving trillions of dollars more. Workers in these plans are even starting to meet the savings recommendations of retirement experts, who suggest setting aside 10 percent to 15 percent of your salary, including any employer contribution, over a career.
While workers are saving more, companies have held their financial contributions steady—at least over the past few years. Employers pitched in 4.7 percent of payroll in 2015, the same as in 2013 and 2014. Even so, it’s still more than a point above their contribution rates in the aftermath of the Great Recession.
One reason workers participating in these plans are probably saving more: They’re being signed up automatically—no extra paperwork required. Almost 58 percent of plans surveyed make their sign-up process automatic, requiring employees to take action only if they don’t want to save.
Automatic enrollment can make a big difference. In such plans, 89 percent of workers are making contributions, the survey finds, while 75 percent make 401(k) contributions under plans without auto-enrollment. Auto-enrolled employees save more, 7.2 percent of their salaries vs. 6.3 percent for those who weren’t auto-enrolled.
Companies are also automatically hiking worker contribution rates over time, a feature called “auto-escalation” that’s still far less common than auto-enrollment. Less than a quarter of plans auto-escalate all participants, while 16 percent boost contributions only for workers who are deemed to be not saving enough.
A key appeal of automatic 401(k) plans is that they don’t require participating workers to be investing experts. Unless employees choose otherwise, their money is automatically put in a recommended investment.
And, at more and more 401(k) and profit-sharing plans, this takes the form of a target-date fund, a diversified mix of investments chosen based on a participant’s age or years until retirement. Two-thirds of plans offer target-date funds, the survey found, double the number in 2006.
The share of workers’ assets in target-date funds is up fivefold as a result.
A final piece of good news for workers is that they’re keeping more of every dollar they earn in a 401(k) account. Fees on 401(k) plans are falling, according to a recent analysis released by BrightScope and the Investment Company Institute.
The total cost of running a 401(k) plan is down 17 percent since 2009, to 0.39 percent of plan assets in 2014. The cost of the mutual funds inside 401(k)s has dropped even faster, by 28 percent to an annual expense ratio of 0.53 percent in 2015.
See the original article Here.
Source:
Steverman B. (2017 January 5). Employees putting billions more than usual in their 401(k)s [Web blog post]. Retrieved from address https://www.benefitspro.com/2017/01/05/employees-putting-billions-more-than-usual-in-thei?ref=hp-news&page_all=1
Financial wellness: Here’s what employees want, need in 2017
Great article from our partner, United Benefit Advisors (UBA) by
Recent research into individuals’ financial resolutions for 2017 can tell you whether your financial wellness initiatives are giving employees what they want. It can also tell you whether to expect employees to increase their retirement contributions next year.
Personal finance company LendEDU recently asked 1,001 Americans about their financial goals for 2017, as well as what their biggest concerns are. The results were published in LendEDU’s “Financial Resolution Survey & Report 2017,” which can help employers determine if their financial programs are on point.
Here are some of the more interesting Q&A’s from the research:
What’s your most important financial resolution in 2017?
- Save more money — 52.85% of respondents selected this
- Pay off debt — 35.56%
- Spend less money — 11.59%
Takeaway for employers: Improving savings should be front and center in any financial wellness strategy.
What’s your top financial resolution?
- Make and stick to a budget — 21.38%
- Save for a large purchase like a down payment, household upgrade, or car, etc. — 19.28%
- Pay down credit card debt — 18.88%
- Place money aside for an emergency — 16.58%
- Save for retirement — 13.69%
- Pay down student loan debt — 7.29%
- Save for college — 2.90%
Takeaway for employers: Employees need the most help creating a budget they can stick to.
What’s your top financial concern?
- Unexpected expenses — 53.25%
- Healthcare costs — 23.98%
- Higher interest rates — 9.69%
- The labor market — 7.79%
- Stock market fluctuations — 5.29%
Takeaway for employers: Helping employees manage healthcare costs can be a key add-on to any financial education program.
Do you think you’re better off financially in 2017 than in 2016?
- Yes — 78.32%
- No — 21.68%
Takeaway for employers: Employees’ financial state of mind is on the upswing, which is good. But it could make increasing participation in wellness initiatives more challenging.
Do you make financial resolutions with your spouse or significant other?
- Yes — 84.83%
- No — 15.17%
Takeaway for employers: When it comes to finances, very few people go it alone, so invite spouses to be a part of your wellness offerings.
What would make you stick to a financial resolution?
- Having a reward for reaching the goal — 37.56%
- Segmenting a longer term goal into smaller bit sized pieces — 20.08%
- Technology that helps you save money or monitor goals in real-time — 19.38%
- The encouragement of family and friends — 13.99%
- Having a consequence for not reaching the goal — 8.99%
Takeaway for employers: Incremental rewards and incentives, can help drive participation and success in 2017 financial wellness initiatives.
Do you think you’ll increase your retirement savings contributions this year?
- Yes — 63.24%
- No — 36.76%
Takeaway for employers: This could be a good year to really push employees to bump up retirement plan contributions.
See the original article Here.
Source:
Author (Date). Title [Web blog post]. Retrieved from address https://www.hrmorning.com/financial-wellness-heres-what-employees-want-need-in-2017/
How financial wellness efforts can boost retirement readiness
Great article from our partner, United Benefit Advisors (UBA) by Joe DeSilva
The economy appears to be strengthening, yet American workers are increasingly worried about retirement. On the face of it, this seems counterintuitive.
But consider this: Unemployment hovers around 5%, the lowest it’s been since 2008, and wages have grown consistently since 2014. Yet, research by Brightwork Partners shows that over the past 12 months, 38% of workers have considered delaying retirement beyond the original age they intended. And 52% of respondents say they will delay retirement because they “need to save more.”
There are a few forces influencing this trend. One reason is simple demographics. People are living longer and, therefore, working longer. The average life expectancy currently is 78.8 years according to the CDC. The percentage of workers age 55 years and older is expected to be 24.8% in 2024, up from 11.3% in 1994, per the Bureau of Labor Statistics. And, according to Gallup, the average age at which U.S. workers predict they will retire is 66, up from 60 in 1995.
In addition, residual lessons from the recession are changing the state of retirement. Even if the United States is nearing full employment and wages are rising, post-recession lessons are having an effect on the way Americans are thinking about retirement, especially millennials. The Brightwork Partners study revealed that the number of employees between 18 and 34 who are considering delaying retirement has increased 15% from 2010. Employees between the ages of 35 and 49 concerned about their retirement increased 7%. Interestingly, this trend is spread across income levels as well. Forty percent of respondents earning $50,000 to $100,000 expect to delay retirement, while 37% earning less than $50,000 expect to delay, and 37% of those earning more than $100,000 expect to do so.
Even though financial worries are a main reason to push back retirement, according to the study, certain age groups have different specific financial concerns. Those under 50 say current financial obligations have them most concerned, while those over 50 are most concerned with retirement. The recession seems to have had an effect on each group, placing an undue burden on financial milestones they face in their respective life stages.
According to AICPA, 50% of U.S. adults say they delayed contributions to retirement accounts due to the burden of student loans, a 22% jump from 2013. Many younger workers were burdened with loans during the recovery and many others came to terms with reduced retirement savings. Those concerns will likely influence how people consider their savings moving forward.
So if employees are pushing off retirement, what effect does this have on benefits administrators and HR departments?
The current trends show an increased concern over financial preparedness, both for short- and long-term objectives. Employer-sponsored benefits, like 401(k) plans and financial wellness programs, can help ease financial stress for those preparing for their retirement years. Financial wellness programs that teach about budgeting, debt management and financial goal-setting are a good complement to 401(k) plans. These programs can show how saving for retirement can be possible even with other financial obligations taking priority. Employers also can use the current shift to re-assess which retirement savings plans make the most sense for their employees and their business. Whether the classic 401(k), Profit Sharing plan or SIMPLE IRA, there are different options that employers can utilize.
It’s a new age for benefits providers. Employees are increasingly concerned about retirement and they want to be proactive in saving for their futures. A recent ADP white paper notes that when employers put in place financial wellness programs, 73% of employers see increased retirement readiness. There’s an opportunity here to not only help employees save more for retirement, but to boost financial wellness and increase overall financial literacy. That win-win scenario certainly seems worth considering.
See the original article Here.
Source:
DeSilva J.(2016 December 1). How financial wellness efforts can boost retirement readiness[Web blog post]. Retrieved from address https://www.employeebenefitadviser.com/opinion/how-financial-wellness-efforts-can-boost-retirement-readiness?tag=00000151-16d0-def7-a1db-97f03c840000
3 reasons benefits are a game-changer for attracting talent
Helpful tips from Employee Benefit Adviser about attracting new talent by Aldor Delp
Unemployment is hovering around 5%, November marked 73 continuous months of job gains and wage growth is picking up. All indications seem to suggest that employers have positions to fill, which may also mean that workers now have leverage, confidence and options. This is good news for job candidates. But for employers vying for fresh talent, it means the attributes of a company need to be that much more enticing. It also makes me think that a comprehensive benefits package may tip the scales for a candidate who’s considering multiple offers. To put it simply: Benefits can be the game changer.
It’s true that a traditional comprehensive benefit package has always been a successful recruitment element for companies. But given the wider array of benefits employers now can offer, today’s companies can use those elements to differentiate themselves from the competition.
From an employer’s perspective, competitive benefits don’t just help with recruitment but can also bolster retention. While strong benefit packages can potentially become expensive depending on the options they include, replacing an employee can be potentially even more costly and time consuming if a company experiences regular churn. With an investment in more appealing benefits packages, an employer may be able to mitigate the cost, time and effort of turnover and recruitment.
While healthy, stocked kitchens, nap areas and ping pong tables are perks that now reach far beyond the tech industry, many companies are building up three additional benefits areas that can truly change the game.
1) Financial wellness programs. Given the recent recession, retirement still is a growing concern for many American workers. A recent study showed that over the past 12 months, 38% of workers considered delaying retirement beyond the original age they intended and 52% said they will delay retirement because they “need to save more.” When these financial worries make their way into the workplace, employers should take notice. Consider a study from PricewaterhouseCoopers that showed that employees spend an average of three hours a week at work dealing with their finances. That’s fairly significant.
By offering financial wellness programs, employers can combat this anxiety and increase efficiency, while providing a sought-after benefit that many companies aren’t yet offering. Ninety-two percent of employer-respondents in another ADP study confirmed interest in providing their workforce with information about retirement planning basics, and 84% said the same of retirement income planning. Even if employers would like to provide these programs, few offer them, citing several existing challenges that stand in the way, such as a need to focus on other aspects of their business (27%) or not enough resources (15%). Providing financial wellness programs can be an added reward that may help a potential employee lean in your favor.
2) Strong internal training. Providing employees with training and development opportunities can promote retention and commitment. Regardless of the number of opportunities for career development, you can still help employees refine skills and increase knowledge that will serve them in the future. American workers want to learn to hone their skills. In fact, 84% of Americans are excited to use technology to learn in real-time, according to ADP’s Evolution of Work study. This is a benefit that not only can provide employee enrichment, it can also strengthen the talent pipeline to management positions.
However, internal training programs are not what they used to be. According to ADP’s recent report, Strategic Drift: How HR Plans for Change, corporate training budgets fell by 20% between 2000 and 2008. Seventy-six percent of executives see the market for skilled employees tightening and 75% expect high turnover among millennials. Reduced corporate training budgets have perpetuated a cycle of high employee turnover. So, if your organization has strong training programs, it’s likely to stand out from competitors. It may be worth considering internal and external training opportunities, mentoring, job shadowing, cross-training and professional development classes.
3) Workplace flexibility. Be open to the idea that it may be more feasible for some workers to telecommute and work from home for a portion of the week. Workplace flexibility is attractive for many employees and it can help reduce the number of unscheduled absences. Flexible work arrangements — such as the option to work from home, alternative start and stop times, compressed work weeks, or Summer Fridays — can help encourage workers to use their time more efficiently, and underscore a corporate culture that stresses balance, mindfulness and trust.
As job candidates and existing employees take a more holistic view of their benefits, relevant, supportive and flexible programs can be the game changer for them. The right mix of direct compensation and indirect benefits may be the difference between onboarding that “dream” candidate, retaining a top performer, or elongating the search for that precious needle in the talent haystack.
See the original article Here.
Source:
Delp A. (2016 December 12). 3 reasons benefits are a game-changer for attracting talent[Web blog post]. Retrieved from address https://www.employeebenefitadviser.com/opinion/3-reasons-benefits-are-a-game-changer-for-attracting-talent
New Law Allows Small Employers to Pay Premiums for Individual Policies
Check out this interesting article from ThinkHR, by Laura Kerekes
This week, the U.S. Senate passed the 21st Century Cures Act which includes a provision allowing small businesses to offer a new type of health reimbursement arrangement for their employees’ health care expenses, including individual insurance premiums. The act was previously passed by the House and President Obama is expected to sign it shortly. The provision for Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs), a new type of tax-free benefit, takes effect January 1, 2017. Further, the act retroactively relieves small employers from the threat of excise taxes under prior rules for plan years beginning before 2017.
Background
Employers of all sizes currently are prohibited from making or offering any form of payment to employees for individual health insurance, whether through premium reimbursement or direct payment. Employers also are prohibited from providing cash or compensation to employees if the money is conditioned on the purchase of individual health insurance. (Some exceptions apply; e.g., retiree-only plans, dental/vision insurance.) Violations can result in excise taxes of $100 per day per affected employee.
The prohibition, implemented under the Affordable Care Act (ACA), was intended to discourage employers from canceling their group plans and pushing workers into the individual insurance market. The rules have been particularly disruptive for small businesses, however, since previously it had been common practice for many small employers to subsidize the cost of individual policies instead of offering group coverage. The new law, passed this week with broad bipartisan support, responds to the concerns of small businesses.
New Qualified Small Employer HRAs
The new law does not repeal the ACA’s general prohibition against employer payment of individual insurance premiums. Rather, it provides an exception for a new type of arrangement — a Qualified Small Employer HRA or QSEHRA — provided that specific conditions are met.
First, the employer must meet two conditions:
- Employs on average no more than 50 full-time and full-time-equivalent employees. In other words, the employer cannot be an applicable large employer as defined under the ACA; and
- Does not offer a group health plan to any of its employees.
Next, the QSEHRA must meet all of the following conditions:
- It is funded solely by the employer; employee contributions are not permitted;
- It is offered to all full-time employees, although the employer may choose to include seasonal or part-time employees and/or may exclude employees with less than 90 days of service;
- For tax-free QSEHRA benefits, the employee must have minimum essential coverage (e.g., medical insurance under an individual policy);
- It pays or reimburses healthcare expenses (e.g., § 213(d) expenses) and premiums for individual policies;
- It does not pay or reimburse contributions for any employer-sponsored group coverage;
- The same benefits and terms apply to all eligible employees, except the benefit amount may vary by:
- Single versus family coverage;
- Prorated amounts for partial-year coverage (e.g., new hires); and
- For premium reimbursements, variations consistent with the age- and family-size rating structure of a representative individual policy; and
- Benefits do not exceed $4,950 if single coverage (or $10,000 if family coverage) per 12-month plan year. Amounts are prorated if covered for less than 12 months. Limits will be indexed for inflation.
Coordination with Exchange Subsidies
Coverage under a QSEHRA will affect the employee’s eligibility for a subsidized individual policy from an insurance Exchange (Marketplace). Any subsidy for which the employee would otherwise qualify will be reduced dollar-for-dollar by the QSEHRA.
Benefit Laws
Group health plans are subject to numerous federal laws, including SPD and other notice requirements under ERISA, coverage continuation requirements under COBRA, and benefit mandates under the ACA. The new law specifies that QSEHRAs are not group health plans, so COBRA and other requirements will not apply.
QSEHRA Notices
Small employers offering QSEHRAs will be required to provide a notice to each eligible employee that:
- Informs the employee of the QSEHRA benefit amount;
- Instructs the employee that he or she must give the QSEHRA information to the Exchange if applying for a subsidy for individual insurance; and
- Explains the tax consequences of failing to maintain minimum essential coverage.
QSEHRA notices should be provided at least 90 days before the start of the plan year.
Employers also will be required to report the QSEHRA coverage on Form W-2, Box 12. The reporting is informational only and has no tax consequences. Although small employers usually are exempt from this type of W-2 informational reporting, apparently it will be required for QSEHRAs starting with the 2017 tax year.
More Information
To learn more about QSEHRAs starting in 2017, or for details about the relief from excise taxes for small employers before 2017, see the 21st Century Cures Act. The relevant provisions are found in Section 18001 beginning on page 306.
Employers that are considering QSEHRAs are encouraged to work with legal counsel and tax advisors that offer expertise in this area. Starting in 2017, employer-funded QSEHRAs can offer valuable tax-free benefits to employees as long as they are designed and administered to meet all legal requirements.
See the original article Here.
Source:
Kerekes L. (2016 December 9). New law allows small employers to pay premiums for individual policies[Web blog post]. Retrieved from address https://www.thinkhr.com/blog/hr/new-law-allows-small-employers-to-pay-premiums-for-individual-policies/
The big trends that will reshape retirement in 2017
Great article from Employee Benefits Advisor, by Bruce Shutan
Seven isn’t just a lucky number for rolling the dice in Vegas; it’s also a solid measure of key trends in retirement planning to watch in the coming year. Here’s what a handful of industry observers believe should be on the proverbial radar for HR and benefit professionals.
Between compliance with fee-disclosure requirements and a growing number of class-action lawsuits on 401(k) plan fees, many plan sponsors have sought more fiduciary partners to help them implement defined contribution plans. The observation comes from Josh Cohen, managing director, defined contribution at Russell Investments. In light of this litigation, he warns that choosing the lowest possible price may not necessarily be the best value or choice for helping improve retirement readiness.
Trisha Brambley, CEO of Retirement Playbook, says it’s critical to vet the team of prospective advisers and the intellectual capital they offer. Her firm offers employers a trademarked service that’s akin to a request for information that simplifies and speeds the competitive bidding process.
While the incoming Trump administration could delay, materially modify or altogether repeal the Department of Labor’s final fiduciary rule, it cannot reverse a “new awareness around the harm that’s created by conflicted advisers and brokers,” cautions David Ramirez, a co-founder of ForUsAll who heads the startup’s investment management. He expects plan sponsors who are managing at least $2 million in their 401(k) to continue asking sophisticated questions about the fiduciary roles his firm and other service providers assume and how they’re compensated. Ramirez points to a marketplace that’s demanding greater transparency, accountability and alignment of goals and incentives irrespective of what the DOL may require.
One way to improve the nation’s retirement readiness is by “fixing all of the broken 401(k) plans with between $2 million and $20 million in assets” that are paying too much in fees, doing too much administrative work or taking on too much liability, according to Ramirez. “In 2014, nearly three out of four companies failed their 401(k) audit and faced fines,” he notes, adding that last year the DOL flagged about four of 10 audits for having material deficiencies with the number being as high as two-thirds in some segments.
While litigation over high fees and the DOL’s fiduciary rule may not have a significant impact on small and mid-market plans, they’re spotlighting the need to make more careful decisions that are in the best interest of plan participants. That’s the sense of Fred Barstein, founder and executive director of the Retirement Adviser University, which is offered in collaboration with the UCLA Anderson School of Management Executive Education. He predicts there will be less revenue sharing in the institutional funds arena and better vetting of recordkeepers, money managers and plan advisers in terms of their fees and level of experience.
Default-driven plan design
Noting that it’s been 10 years since passage of the Pension Protection Act, Cohen says default-driven plan design continues to have a major impact on retirement planning. The trend is fueled by qualified default investment alternative options that encourage appropriate investment of employee assets in vehicles that will maximize long-term savings. He predicts “further customization” of off-the-shelf target date funds at the individual level based on each participant’s own unique situation and experiences. Moreover, he sees more use of a robo-adviser type framework built around managed accounts, while participants with a complex financial picture will seek a more tailored solution that fits their needs.
Financial wellness
Financial wellness cuts across virtually any demographic, Cohen notes. The point is to help balance household budgets with retirement-saving goals, “whether it involves millennials dealing with student debt or middle-aged parents dealing with college tuition, a mortgage or credit card debt,” he explains. He sees the use of more creative ideas, tools and support, such as encouraging young employees to pay off student loans by making a matching contribution to their 401(k).
For employers, a key to reaching millennials on financial wellness is through text messages over all other means of communication, suggests Ramirez, whose firm is able to get 18- to 24-year-olds saving 6.7% on average and 25 to 29-year-olds 7.3%. As part of that strategy, he says it’s important to set realistic goals, such as new entrants into the workforce deferring 6% of their salary before increasing that amount with rising earnings. The idea is to establish a culture that turns millennials into super savers.
“We’re seeing employers help their employees with just setting a basic budget,” says Rob Austin, director of retirement research for Aon Hewitt. “It can also move into things like saving for other life stages.”
Aon Hewitt recently released a report on financial wellness showing that 28% of all workers have student loans. While researchers noted that roughly half of millennials were saddled with this debt, the margin was cut in half for Gen Xers (about 25%) workers and halved again for baby boomers (about 12.5%). The employer response has been somewhat tepid, according to Austin. For example, just 3% of companies help employees pay for student loans, about 5% help consolidate those loans and 15% offer a 529 plan.
Financial wellness is being expanded and embedded into retirement programs to serve a growing need for more holistic information, observes Brambley. “A lot of people don’t even know how to manage a credit card, let alone figure out how to scrape up a few extra bucks to put in their 401(k) plan,” she says.
401(k) plan fees
Ted Benna, a thought leader in the retirement planning community commonly referred to as the “father of 401(k),” found earlier in the year “a very high level of indifference” among plan sponsors about the prices they pay for recordkeeping, investment management services and related costs. He says this was the case even at companies with “pretty outrageously high fees,” which proved to be a big shock for him.
The discovery coincided with the start of his latest advisory venture, which was designed to help shepherd sponsors through the 401(k) fee minefield with objective information to determine that the fees they were paying were reasonable and, thus, in the best interest of participants. But Benna didn’t see much demand for the service he envisioned, so he’s now in the throes of writing his fifth book, whose working title is “Escaping the Coming Retirement Crisis Revisited.”
Litigation over high fees has at least raised awareness among plan sponsors about the need for reasonable prices, along with sound investment offerings, as regulators step up their scrutiny of fiduciary duties, Austin says. While not necessarily related, he has noticed that nearly as many employers are now charging their administrative fees as a flat dollar amount vs. those that historically charge a percentage of one’s account balance. “If you have a $100,000 balance, and I have a $1,000 balance, you and I have access to the same tools and same funds,” he reasons. “So why would you pay 100 times what I’m paying just because your balance is higher?”
Greater automation
With increasing automation on the horizon, Ramirez notes that 401(k) plans are moving into cloud-based technology that will streamline core business processes and avoid careless errors.
For instance, that means no longer having to manually sync the 401(k) with payroll when employees change their deferral rate or download the payroll report to a 401(k) plan recordkeeper. “That’s 1990s technology,” he quips. “Signing up for the 401(k) can be as easy as posting a picture on Instagram or sending a tweet.”
Apart from vastly reducing the administrative burden, he says it also allows makes it easier for plan participants to enroll, increase deferrals, receive better advice based on algorithmic formulas and improve communications. The upshot is that when all these pieces of the puzzle are in place, ForUsAll has found that participants in the plans it manages save on average 8% of their pay across all industries and demographics.
Barstein believes there’s still going to be a lot of movement toward auto-enrollment and escalation, as well as the use of professionally managed investments like target-date funds, which he predicts will become more customized. “We’re starting to see where participants in one plan can choose a conservative, aggressive, or moderate version of a target date,” he says of efforts to improve an employee’s financial wellness.
Streamlined investments
Brambley sees a movement toward investment menu consolidation. She remembers how it was customary for employers to offer three to four distinctively different investment funds in the early years of 401(k) plans, which later gave way to about 20 such offerings on average. The push is now to weed out any duplication of so-called graveyard funds because she says “there’s some fiduciary risk to continue to offer them when they no longer meet the criteria on their investment policy statement.”
Cohen agrees that plan sponsors continue to see the benefit of streamlining the menu of options for a more manageable load. As part of that movement, he sees the adoption of “white labeling” of investment options that replaces opaque, retail-branded fund names with accurate generic descriptions. For example, they would reflect asset classes (i.e., the Bond Fund or the Stock Fund). The thinking is that this approach will generate more meaningful or practical value for participants whose knowledge of basic financial principles is limited.
Confining the selection of investments to a handful of funds in distinctly different asset classes will invariably make the process much easier for participants, Brambley suggests. This enables plan sponsors to wield “more negotiating power” on pricing because they have funds collecting under various asset-class headings, she explains.
Recordkeeper consolidation
Recordkeeper consolidation is going to continue, according to Barstein, who sees organizations that lack technology, scale and the support of their parent company will not survive marketplace change.
The most noteworthy activity will involve big-name mergers as opposed to scores of recordkeepers leaving or merging, he believes.
“If I was a plan sponsor, I’d be concerned because nobody really wants to go through a conversion,” Barstein says. “I’m sure JP Morgan forced a lot of their clients to either consider changing when they went through the acquisition by Empower.”
See the original article Here.
Source:
Shutan B.(2016 December 7). The big trends that will reshape retirement in 2017[Web blog post]. Retrieved from address https://www.employeebenefitadviser.com/news/the-big-trends-that-will-reshape-retirement-in-2017