403(b) Plans Get a Reprieve

While I was picking up my daughter at college in Ohio, the IRS issued the notice everyone was waiting for, extending the deadline for the written plan document requirement for 403(b)s. From a news release: The IRS issued a notice…

While I was picking up my daughter at college in Ohio, the IRS issued the notice everyone was waiting for, extending the deadline for the written plan document requirement for 403(b)s. From a news release:

The IRS issued a notice today announcing relief for certain retirement plans that do not have a written plan in place by January 1, 2009. The new guidance is for retirement plans covering employees at public schools, colleges and universities, and other tax exempt organizations. These retirement plans are often referred to as 403(b) plans after the relevant section in the tax code.

The IRS is extending the deadline for plan sponsors to adopt new written plans or amend existing plans to satisfy the requirement of the final 403(b) regulations because of difficulties expressed by numerous plan administrators in meeting the current deadline of January 1, 2009. This extension will give plan sponsors additional time to put their plan documents in place.

The IRS will treat these plans as meeting the requirements of 403(b) and the regulations during the 2009 calendar year if:

  • By December 31, 2009, the plan sponsor of the plan has adopted a written 403(b) plan that is intended to satisfy the requirements of 403(b) and the regulations.
  • During 2009, the plan sponsor operates the plan in accordance with a reasonable interpretation of 403(b) and the related regulations.
  • By the end of 2009, the plan sponsor makes its best effort to retroactively correct any operational failure during the 2009 calendar year to conform to the written plan.

    The IRS plans to issue further guidance on 403(b) plans, including a revenue procedure establishing programs for 403(b) plans to obtain IRS approval of the plan document and allowing these plans to make remedial amendments to retroactively fix plan provisions under rules that similar to those that apply for 401(a) qualified plans.

  • Notice 2009-3 has all the official details.

    Will Congress Act on Pension Relief?

    Many groups are sounding the alarm and asking Congress to act: ERIC Warns Congress about Inaction on Pension Funding Relief American Benefits Council Webpage Urging Legislators to Act ASPPA Urges Practitioners to Contact U.S. Senators Urging Passage of PPA Corrections,…

    Many groups are sounding the alarm and asking Congress to act:

  • ERIC Warns Congress about Inaction on Pension Funding Relief
  • American Benefits Council Webpage Urging Legislators to Act
  • ASPPA Urges Practitioners to Contact U.S. Senators Urging Passage of PPA Corrections, Pension Funding and Minimum Distribution Relief
  • Loosen Pension-Funding Rules, Consultants Ask Congress

  • In Support of Health Savings Accounts

    Many are predicting that health savings accounts will not fare very well in the upcoming administration. However, this recent Congressional Research Service Report indicates why we should keep them alive: Whether moving to higher insurance cost sharing would reduce health…

    Many are predicting that health savings accounts will not fare very well in the upcoming administration. However, this recent Congressional Research Service Report indicates why we should keep them alive:

    Whether moving to higher insurance cost sharing would reduce health care spending is not at issue; notwithstanding measurement difficulties, economic theory, actuarial experience, and empirical studies all indicate that it does. Probably the most frequently cited research demonstrating this point is the RAND Health Insurance Experiment (HIE), a carefully designed study of nearly 6,000 people between 1974 and 1982. Among other things, the study showed that per capita expenses for patients with a 95% coinsurance requirement for outpatient services were 31% lower than those for patients without cost-sharing. Reductions were also present but somewhat smaller for patients with lower coinsurance requirements, as they were for those with deductible policies. Reductions occurred for a broad range of conditions, especially for ambulatory care but also for hospitalization.

    More debatable is what effect reductions in spending have on individuals’ health, which could affect measures of the welfare loss. A common reading of the RAND HIE is that the health outcomes of those with high cost sharing were not different from those having conventional coverage, with several exceptions. (The exceptions included high blood pressure and vision imperfections in adults and anemia in children.) Although more health problems might have arisen for the high cost sharing group had the experiment continued longer, there is no way to prove or disprove this now.

    Also, this article here notes:

    More than 12 million lives are now covered by a health plan that either includes a health reimbursement arrangement (HRA) or is compatible with an HSA. And with more employers than ever offering such plans to employees during this fall’s open-enrollment period, that number is expected to jump on Jan. 1. Plus, banks collectively now hold more than $4 billion in HSA assets.

    And finally this from the article:

    Jay Savan, an employee benefits consultant in the St. Louis office of Towers Perrin, says the potential for account-based health coverage actually remains as bright as ever. The exclusion of employer contributions for health coverage now is uncapped and is the Treasury Dept.’s third-largest tax expenditure. Savan contends that the tax break will need to be capped at some point, “particularly if Obama intends to have any money left to pay for an expanded [State Children’s Health Insurance Program] or other federal subsidies that ensure children have health coverage, as he’s maintained as part of his platform.”

    And if a cap is placed on the amount of pretax dollars employees can contribute to their health coverage, employers will be pressed by their employees to offer options that don’t exceed the tax cap. Low-premium, account-based plans might be an attractive option, Savan says.

    Ramthun says he’s encouraged that HSA-based health plans remained available in Massachusetts after the state enacted its landmark health reform efforts. “That is a likely model given the [Sen. Ted Kennedy] connections to Obama. I don’t believe Kennedy will go farther than where Massachusetts has gone.

    Impact of Massachusetts’ Health Care Reform

    Now that Massachusetts requires state residents to be covered by health insurance, apparently there are not enough primary care physicians to go around. From this NPR article: The law, passed in 2006, requires most state residents to be covered either…

    Now that Massachusetts requires state residents to be covered by health insurance, apparently there are not enough primary care physicians to go around. From this NPR article:

    The law, passed in 2006, requires most state residents to be covered either through a state-subsidized plan, an employer-sponsored plan or an individual policy. Jacqueline Spain, medical director for Holyoke Health Center, said, “It’s entirely reasonable for somebody who’s now got insurance and maybe has a whole list of things that’s worried them and troubled them” to “expect that they should be able to go out in the market and get all of that care. There just aren’t enough [primary care physicians] to give it to them.” She said about 1,600 people currently are on the facility’s waiting list and patients must wait an average of four months to be seen.

    Some Year-End Deadlines

    In its Fall 2008 Retirement News for Employers, the IRS reminds employers of the following deadlines: Dec. 2: Deadline to provide safe harbor notice for Safe Harbor 401(k) plans for 2009 plan year. Dec. 2: Deadline to give eligible employees…

    In its Fall 2008 Retirement News for Employers, the IRS reminds employers of the following deadlines:

    Dec. 2: Deadline to provide safe harbor notice for Safe Harbor 401(k) plans for 2009 plan year.

    Dec. 2: Deadline to give eligible employees Automatic Enrollment Notice.

    Dec. 31: Deadline for: making 2008 required minimum distributions; and distributing 2007 401(k) excess contributions (including income or losses) without jeopardizing a plan’s tax-qualified status.

    In Cutting Costs, Employers, Beware of ERISA Section 510

    This article from Wharton-"As Layoffs Spread, Innovative Alternatives May Soften the Blow"-indicates companies are looking at creative alternatives to layoffs "such as voluntary retirements or salary cuts, hiring freezes, reductions in hours, or the cancellation of business trips and/or costly…

    This article from Wharton–“As Layoffs Spread, Innovative Alternatives May Soften the Blow“–indicates companies are looking at creative alternatives to layoffs “such as voluntary retirements or salary cuts, hiring freezes, reductions in hours, or the cancellation of business trips and/or costly perquisites.” The article also notes the trend of cutting “benefit packages and matching contributions to 401(k) plans.”

    Whatever the alternatives contemplated, employers need to beware of the minefield of Section 510 of ERISA. For those not familiar with ERISA section 510, it provides as follows:

    It shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan. . . or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan. . .

    For instance, targeting for layoff those employees who are costing the company more when it comes to health care costs or pension costs is unlawful under Section 510. Some may recall the well-known Millsap et al. v. McDonnell Douglas Corporation case in which the company was accused of seeking to maximize their pension plan’s surplus by selecting for layoff or plant closing its older, more senior employees. You can read about the millions that were recovered in that case by the plaintiffs here, here, and here.

    Also, outsourcing or reclassifying employees to cut benefits costs can give rise to ERISA Section 510 claims. Read more about that topic here, here, and here.