May 2015, Page 3 Archive

Even if you use a third-party administrator for your retirement plan, you need to pay attention to what the IRS just published. 

Employee Plan News is a somewhat bare-bones newsletter the IRS uses to provide guidance and news to plan sponsors and administrators, and in its April 1, 2015 issue, it said that recent audits have revealed that retirement plan administrators are making some mistakes.

As a result, the IRS tried to clarify some recordkeeping, hardship distribution and plan loan rules.

A warning to plan sponsors

To kickoff the newsletter, the IRS said that using a third-party administrator won’t protect plan sponsors if mistakes are made in the administration of their plans.

Bottom line: Plan sponsors are ultimately responsible for how their plans are run.

So plan sponsors will want to make sure the following requirements are being met.

Hardship documentation

When it comes to hardship loans, the IRS said plans must retain these records for examination, should an audit need to be conducted (it’s not sufficient for plan participants, alone, to retain these records):

• documentation of the hardship request, review and approval
• financial information and documentation that substantiates the employee’s immediate and heavy financial need
• documentation to support that the hardship distribution was properly made in accordance with the applicable plan provisions and the Internal Revenue Code, and
• proof of the actual distribution made and related Forms 1099-R.

Self-certification is not enough

The IRS went on to say that audits have revealed some administrators are mistakenly allowing plan participants to self-certify that they satisfy the criteria to receive a hardship distribution.

Instead, administrators must request and retain documentation to show the existence and the nature of the hardship — such as a principal residence purchase agreement or receipts for medical care or funeral expenses.

The IRS did, however, say that self-certification is permissible for a participant to show that a hardship distribution is the sole way to alleviate a hardship.

Plan loan documentation

When it comes to plan loans, the IRS said plan sponsors must retain these records:

• evidence of the loan application, review and approval process
• an executed plan loan note
• documentation, if applicable, verifying that the loan proceeds were used to purchase or construct a primary residence
• evidence of loan repayments, and
• evidence of collection activities associated with loans in default and the related Forms 1099-R, if applicable.

Loans in excess of five years

If a participant requests a loan with a repayment period in excess of five years for the purpose of purchasing or constructing a primary residence, the IRS says the plan sponsor must obtain documentation of the home purchase before the loan is approved.

What about self-certification?

Much like with hardship distributions, the IRS says allowing participants to self-certify their eligibility for these loans is impermissible.

Don’t say you weren’t warned: There’s good chance these new laws are precursors to legislation you may soon see in your state or city. 

The ink is still wet on these laws, which may help shape widespread employment law changes in this country:

Stop Credit Discrimination in Employment Act

Where: New York City.

When: Becomes effective September 2015.

What: The law prohibits most employers from using credit reports or bankruptcies to disqualify job candidates or when making employment decisions regarding current employees. It also gives aggrieved applicants and employees the right to sue employers for using their credit history in employment decisions.

Note: It’s one of the broadest credit check laws in the country, as its definition of “credit history” includes any information obtained from applicants or employees relating to their credit history, including info on credit accounts, late or missed payments, charged-off debts, items in collections, credit limit and prior credit inquiries.

The law applies to all city employers with at least four employees. Limited exceptions include:

• law enforcement personnel
• financial services workers
• employees with signatory power over assets of $10,000 or more, and
• workers with access to trade secrets or national security info.

Clean Air Bill: Act 19 (HB 940)

Where: Hawaii.

When: Becomes effective January 2016.

What: The law bans the use of electronic smoking devices — such as e-cigarettes, e-cigars, e-pipes and any smoking device that needs a cartridge to operate — in existing smoke-free zones, namely enclosed or partially enclosed workplaces.

Note: Hawaii joins North Dakota, New Jersey and Utah in passing legislation banning the use of electronic smoking devices in smoke-free zones. There is still much debate over the potential health risks of electronic cigarettes, and the manufacturing process for the products isn’t as heavily regulated as that of cigarettes. In other words, there’s still a lot we don’t know about the products. As a result, governing bodies are starting to take proactive steps to protect workers should the products prove to be unhealthy.

Pregnant Workers Fairness Act: LB627

Where: Nebraska.

When: September 2015.

What: The law amends the state’s Nebraska Fair Employment Practice Act, and requires employers with 15 or more employees to make reasonable accommodations for employees with known physical limitations resulting from pregnancy or childbirth, unless it would cause an undue hardship.

Note: The law represents an expansion from federal discrimination law in that it requires employees to accommodate any employee experiencing medical problems related to pregnancy or childbirth so long as it is reasonable to do so. Employers would have to prove an accommodation would “require great difficulty or expense” to deny providing one. Under federal law, employers are required to provide pregnant employees with a reasonable accommodation, as long as they accommodate other employees who are similar in their ability or inability to work.

Should an employer have the right to know where an employee is 24 hours a day?  

That’s the central question in a recent lawsuit filed in California state court, in which a salesperson claims she was fired for removing an app from her cellphone that would have allowed her boss to learn her whereabouts 24/7. The sales exec says the company was guilty of violating privacy and California labor laws, unfair business practices, and wrongful termination.

Myrna Arias was working for NetSpend Corporation when she was recruited by a former colleague, John Stubits, to work for the wire-transfer company Intermex as a sales manager and account manager in Intermex’s Bakersfield office.

Because she was worried about some health issues, Arias asked to be allowed to continue to work for NetSpend so she could continue coverage during Intermex’s three-month waiting period for health benefits. Her request was granted.

Under the microscope, 24/7

A few weeks into Arias’ tenure at Intermex, Stubits, now Intermex’s regional VP of sales and Arias’ boss, instructed employees to download an app called Xora to their smartphones. Arias did a a little research and discovered that Xora contained a global positioning system (GPS) function that could track the precise location of each employee.

Arias and other employees asked if Intermex would be monitoring their off-duty movements. Stubits said yes, adding that when she was driving, the app could even tell him who fast she was going.

He also ordered salespeople to have their phones on continuously in case a customer called.

Arias said she didn’t mind her movements being monitored during work hours, but considered off-hours surveillance an invasion of privacy.  She likened the app to a prisoner’s ankle bracelet.

Her arguments, however, fell on deaf ears, and a few weeks later, Arias de-installed the app.

A few weeks after that, Arias was fired from Intermex. To add insult to injury, she claims, an exec from Intermex called NetSpend and got her fired from that organization.

The case was filed in California Superior Court in early May. We’ll keep you posted.

When it comes to benefits, the number of perks you offer employees is a very important metric.  

At least that’s what MetLife’s 13th annual U.S. Employee Benefit Trends Study discovered.

The MetLife study questioned more than 5,000 U.S. workers, with half of the respondents being benefits managers.

Multiple benefits = great company

In a nutshell, benefits are a huge factor in workers’ happiness with their employer and their willingness to recommend that employer as a “great place to work.”

Case in point: At businesses where no benefits are offered, fewer than half (46%) of employees would recommend their employers as “great places to work.”

Then, at companies where workers are offered between one and five benefits, the recommending percentage jumps to 53%.

Now here’s the kicker: At companies where employees are offered 11 or more benefits, the percentage of workers who recommend their employers as great places to work jumps all the to 66%, that’s 20 percentage points higher than at firms where no benefits are offered.

Plus, around 40% of workers said a wide selection of benefits would make them feel more loyal to their employer.

These findings seem to suggest that the more benefits you offer, the more satisfied your employees will be. But, of course, blindly introducing a huge selection of benefits offerings isn’t the way to go. One suggestion: Survey workers on the benefits they’d be most likely to use and offer as many of those perks as you can.

Other key findings

The MetLife study also uncovered some important findings on employers’ benefits communication and employees’ work and financial concerns.

Other highlights from the study:

• Just 45% of employees said that they strongly agree that their employers’ benefit communications helped them to understand how they would pay for specific services and effectively educated them on their benefit choices
• 41% of employers said retention was their top employee benefits objective
• 51% of employees were concerned about job security (up from 46% in 2014) make it the top employee concern
• Only 34% of workers said they have a saving cushion of three months’ salary (down from 46% in 2013), and
• 49% of employees said they’re experiencing financial stress and look to their employer for financial security help.

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It has been a long, nervous year for the business community ever since President Obama ordered the DOL to revise the FLSA’s overtime exemption rules — to make more salaried workers overtime-eligible. 

Well, the wait for the new rules is almost over. On the DOL’s blog, Labor Secretary Thomas Perez announced that the new proposed rules have been submitted to the federal Office of Management and Budget for review.

We won’t get a peak at the rules until they’re approved by the office, but we’re not completely in the dark as to what they’ll look like.

What’s set in stone:

There are two rock-solid certainties that we know of so far.

The proposed rules will seek to:

1. Make more — a lot more — salaried employees overtime-eligible, and
2. Increase the minimum salary a person must earn to be exempt from overtime.

What’s up in the air:

What we don’t know yet is exactly how much the minimum salary level will be increased — but it’s expected to be significant. The level currently sits at $455 per week or $23,660 per year.

Ross Eisenbrey, vice president of the Economic Policy Institute, an organization that holds a lot of sway with Democratic policymakers, told The Huffington Post that his talks with White House officials have lead him to believe the threshold will be increased to somewhere around the $42,000 mark.

Tammy McCutchen, a former administrator for the DOL’s Wage and Hour Division, who has sat in on a number of “listening sessions” with Perez about the reg changes, is reporting it’s possible the figure could be even higher. McCutchen, who’s now an attorney for the law firm Littler Mendelson P.C., wrote on her firm’s blog that “30 congressional Democrats sent a letter to Secretary Perez calling for a salary level of $69,000.”

Most predictions, however, are that the level will be set closer to the $42,000 mark.

Another change employers can expect is a revision of the “duties tests” used to determine whether employees are exempt from overtime.

McCutchen wrote that she expects the DOL to propose adopting a California-style rule requiring employee to spend more than 50% of their time performing exempt work to be classified as exempt. She also wrote that it’s possible the DOL eliminates the concept of “concurrent duties.” Under the existing concurrent duties test, managers can be exempt even if they’re doing the same work as direct reports, as long as managing others is their “primary” function.

What’s next?

Once the Office of Management and Budget approves the proposed rule changes, they’ll be published in the Federal Register. At that point, the public will have its first look at them (and we’ll have a full breakdown for you).

Once in the Federal Register, the public will have an opportunity to comment on them. The DOL will then review the comments and make changes to the proposed rules if its deemed necessary. At that point, the rules will be re-released in their final form, and an effective date will be announced.

Bottom line: The rules aren’t likely to take effect until late 2015, early 2016. But start gearing up as soon as the proposed rules are released. It’s likely the finalized rules won’t be much different.

We know what you’re thinking: This is just the latest attempt by Republicans to shoot holes in the Affordable Care Act. But it’s not; this bill’s backed by 71 co-sponsors, and only three of them are Republicans. 

It’s called the Middle Class Health Benefits Tax Repeal Act of 2015 (H.R. 2050), and it was introduced by Rep. Joe Courtney (D-CT).

The goal: Repeal the ACA’s “Cadillac Tax,” which is a 40% excise tax on health insurance plans costing more than $10,200 for individual coverage and $27,000 for family coverage.

The tax takes effect in 2018, after having already been pushed back from its initial start date of 2013 — and therein lie one of the problems.

Those thresholds were meant to be in place five years ago, when health plans were cheaper than they are today (although they’ve never been “cheap”).

Many in Congress, including a very large contingent of Democrats, believe the law is A) outdated, B) too flawed to have ever been passed to begin with, and C) tied to the wrong escalator — consumer spending and not healthcare costs.

The original delay of the bill was the result of lawmakers’ concerns over its potential impact (the old “kick the can down the road” routine). And now that its enactment is growing closer, they want it scrapped altogether.

In a release on his website, Courtney said:

“The excise tax is a poorly designed penalty that will put a dent in the pocketbooks of many families and businesses with health insurance plans that do not resemble the ‘Cadillac’ plans originally targeted when this policy was adopted — instead, the excise tax will punish people living in higher cost areas, with ‘Ford Focus’ level plans.”

Part of lawmakers’ concern is the tax thresholds (i.e., the $10,200 and $27,000 figures) are tied to consumer spending, which means that while they’ll increase over time, they won’t increase nearly as fast as healthcare costs.

As a result, it’s only a matter of time before every plan is considered a “Cadillac” plan.

The consulting firm Towers Watson went to work crunching the numbers. What it found was that in 2018, 48% of large employers with health plans will be affected by the tax. Then by 2023, that number will grow to a whopping 82% of large employers.

Courtney continued:

” … The excise tax is not a smart reform — it is a flawed, one-size-fits-all penalty that will degrade workers’ benefits, lead employers to choose less comprehensive plans, and force families to pay more out-of-pocket health care costs. Fortunately, we have the opportunity to eliminate this tax before it goes into effect, and I am proposing this legislation to ensure that America’s working families are protected from an uneven, unnecessary cut to their hard-earned health care benefits.”

Does the bill have a chance of passing? And even if it does, will it get vetoed by the president?

It’s too early to tell. But one thing’s for sure: Few bills seeking to rollback a large chunk of Obamacare have received this much backing from Democrats.

If your company hasn’t implemented the FSA carryover option yet, you may want to make it a priority.

Firms that adopted the carryover option for 2015 saw a double-digit increase in FSA enrollment among employees, according to a recent study.

What’s more, the study from WageWorks and Visa shows a majority (60%) of employers have either amended or are planning to amend their FSAs to include the carryover.

Participation = savings

As firms know, the carryover rule allows FSA users to carry over up to $500 into the next plan year.

And that $500 doesn’t count toward the ACA limit on FSA contributions ($2,550 for 2015).

Despite the perks, some firms aren’t sold on the carryover option.

For one thing, it means you can’t offer the “grace period” option where leftover FSA funds can be used for expenses incurred in the first two-and-one-half months of the following plan year.

Plus, some firms had gotten used to workers forfeiting FSA funds at year-end and using those funds to administer the accounts.

But, according to WageWorks CCO Jody Dietel, the greater the employee participation in FSAs, the fewer dollars being subject to payroll taxes.

Those savings are likely to make the carryover a “standard design” in FSAs soon, Dietel says.

If employees have gotten used to the FSA grace-period and you’re planning on switching to the carryover, don’t spring the change on workers at the last minute.

Stress carryover benefits

Communication should take place well before open enrollment.
Also, make it a point to stress some of the benefits of the carryover: less worry about spending funds before year-end, $500 carryover is available for the following entire plan year and carryover from one year could rollover year after year.