Key Benefit Trends for 2014: What Every HR Professional Should Know Society for human resource management chapter meeting Prince william • Fauquier • Culpeper March 5, 2014 Andrea I. O’Brien Isler Dare, P.C. (703) 748-2690 firstname.lastname@example.org
Goals and Agenda • Identifying top legal trends affecting benefit plans in 2014 and understanding their impact on talent recruiting and retention • Employer responses to health reform • Pay, play, or redesign? • Trim down benefit offerings • Migrate to consumer-driven plans • Invigorate wellness initiatives • Re-evaluate total rewards strategies • Voluntary programs • Popular, but need to navigate compliance minefields • Retirement security trends • Roth plan options • Auto enrollment and auto escalation • Enhanced investment education to optimize retirement readiness Isler Dare, P.C.
Employer Responses to Health Reform Pay, Play or Redesign: Paying • Key building blocks to Federal health reform are the “shared responsibility” mandates – on individuals and employers • Brief refresher course on the current status: • No delays in individual mandate (except for those whose policies were cancelled) • $95 in 2014 • $325 in 2015 • $695 in 2016 • Delays in employer shared responsibility mandate and penalties • To 2015 for employers with more than 100 FTEs (1st day of 2015 plan year if a non-calendar plan year) • To 2016 for employers between 50-99 FTEs • Don’t reduce workforce below 100 to take advantage • Don’t eliminate or materially reduce coverage in place on 2/9/14 • Provide certification on a prescribed form Isler Dare, P.C.
Employer Responses to Health Reform Pay, Play or Redesign: Paying Two Separate Penalties; applied on a member-by-member basis within a controlled group of companies • The Penalty for No Coverage - $2,000 per FTE • If a large employer does not offer minimum essential health coverage to “substantially all” of its FTEs and their non-spouse dependents, AND at least 1 FTE obtains a premium tax credit/subsidy to help pay for coverage obtained on the state or federal exchange • 2015: 70% of FTEs must be offered coverage; exclude 1st 80 FTEs • 2016: 95% of FTEs must be offered coverage; exclude 1st 30 FTEs Isler Dare, P.C.
Employer Responses to Health Reform Pay, Play or Redesign: Paying • The Penalty for Offering Coverage that is Inadequate or Too Expensive - $3,000 per Subsidized FTE • If a large employer offers coverage to 70%/95% of its FTEs and their non-spouse dependents, but at least 1 FTE receives a premium tax credit/subsidy to help pay for coverage obtained on the state or federal exchange, because the coverage offered by the employer is either not minimum value, or is not affordable • Minimum value = covers at least 60% of total allowed costs of benefits • Affordable coverage – If employee share of premium for employee-only cost, for lowest-cost option, does not exceed 9.5% of the employee’s income. 3 safe harbors: W-2 wages Rate of pay (for hourly employees) Federal poverty level for single individual No penalties unless at least 1 FTE receives a premium tax credit (which will not be available if the employer offers affordable coverage that provides minimum value, even if the employee rejects the offer of coverage and enrolls in the exchange anyway) Isler Dare, P.C.
Employer Responses to Health Reform Pay, Play or Redesign: Paying • Despite delays, still need to put into place infrastructure to “count” your employees - whether you pay or play • FTE = 30+ hours per week • Count FTEs using look-back or monthly measurement periods • Special rules for seasonal employees (customary annual employment is 6 months or less); educators (not part-time just because closed for the summer) • Transition rule for implementation • Measurement periods – for 2015, 6 months (not 12) Practical impact: You will need to keep enhanced records • If you pay: To calculate penalties • If you play: To deflect penalties by demonstrating who was offered coverage Isler Dare, P.C.
Employer Responses to Health Reform Pay, Play or Redesign – An Example of How the Penalties Might Work Smith Engineering & Construction has 400 employees. It consists of a parent company that handles all headquarter and support functions for the operating subsidiaries (100 employees), and two operating subsidiaries – Smith Engineering (40 FTEs) and Smith Concrete (260 FTEs). Smith Engineering & Construction has a self-funded health plan, but Smith Engineering does not want to offer insurance coverage to its 5o employees. Assume that at least 1 employee of Smith Engineering then obtains coverage on the exchange. • Is Smith Engineering subject to the shared responsibility mandate penalty, since it only has 40FTEs? • If it is, how is that calculated? • Are there other issues to consider? Isler Dare, P.C.
Employer Responses to Health Reform Pay, Play or Redesign How are companies responding? • Very few opting to “Pay” and have their employees get coverage through one of the exchanges so that their employees don’t face the individual mandate tax • Impact on recruiting and retaining talent • Government contracting industry concerned about not “paying” because mandate can be characterized as an penalty or a tax, and that may not be able to be passed through • Opting out of the market is somewhat more common in the smaller (under 50) market because of the downstream impact of community-based underwriting and the challenge of having comparable benefits for employees with different coverage levels • Example: Premium costs for employee John (55) and his wife Mary (52) vs. employee Sarah (35) and two children (ages 10 and 7) will be dramatically different under age and community –based underwriting Isler Dare, P.C.
Employer Responses to Health Reform Pay, Play or Redesign: Playing and Redesign Most companies are “playing” Some making workplace adjustments/enhancing monitoring • Adjusting hours so fewer employees qualify as FTEs • Dependent eligibility/verification audits Most redesigning plans to implement or enhance cost-containment features • Most have lost grandfathered status (from March 23, 2010) by now • Moving to maximum 90-day waiting period • Spousal surcharge (or “coverage privilege”) • Increasing employee proportion of dependent coverage cost • Restructuring of out of pocket costs – copays; coinsurance Isler Dare, P.C.
Employer Responses to Health Reform • Trimming Benefit Offerings • Provide core benefits • Some have migrated to program where they offer plans comparable to bronze/silver/gold/platinum plans on public exchanges so that employees can do an “apples to apples” comparison • Beginning to plan for impact of “Cadillac Plan” excise tax – 40% excise tax on value of employer-sponsored plans that exceeds $10,200 for individuals/$27,500 for families Isler Dare, P.C.
Employer Responses to Health Reform • Migrating to Consumer-Driven Plans • Trend of the “consumerization of employee benefits”, originating and dominating retirement plans, has spilled over to health plans • Key: • Educate employees about how insurance works (networks; coinsurance; how they can manage their costs more effectively) • A multi-phased process • HDHP with HSA can set the foundation for migrating to defined contribution approach or private exchanges • 1/3 of employers anticipate moving to private exchanges in 3-5 years Isler Dare, P.C.
Employer Responses to Health Reform Enhancing and Invigorating Wellness • Many employers are seeing an expansion or invigoration of wellness programs as key to incentivize employees towards better health (and lower health care expenses) – financial incentives for healthy behaviors; adopting or expanding disease management, etc. Isler Dare, P.C.
Employer Responses to Health Reform • Enhancing and Invigorating Wellness Initiatives • Understand their legal status – part of health plan? Stand-along? • Regulations finalized at end of 2013 for health contingent programs, which must meet 5 criteria to satisfy HIPAA & health reform requirements, or else they are will be considered to violate HIPAA rules prohibiting discrimination on account of health status or condition) • Must be available to all similarly-situated individuals • Must be able to qualify for reward at least 1x/year • Reward cannot be more than 20% of cost of coverage • Increasing to 30% in 2014 • Increasing to 50% for rewards designed to prevent or reduce tobacco use • Must be reasonably designed to prevent disease or promote health • Must disclose alternatives that are available Isler Dare, P.C.
Employer Responses to Health Reform Re-evaluating or overhauling total rewards • Recognition of organizational change and dynamism • Optimizing total rewards for your current demographic • Monetizes value of health coverage • Alternatives: • Enhanced retirement match • Continued focus on performance and incentive compensation programs Isler Dare, P.C.
Voluntary Benefit Programs • Why are Voluntary Benefits So Popular Now? • Trimming of health plan offerings by employers due to ACA • Part of the consumerization trend—enables employees to customize their benefits • Younger workers are used to more choices and tailoring • Convenience – payment through payroll deduction • Access to wider array of benefit plans, at lower rates, than could be obtained on individual market: • Cancer, critical illness • Supplemental life, disability • Pet insurance • Identity theft • Legal, financial planning Isler Dare, P.C.
Voluntary Benefit Programs • Voluntary benefits – Traps for the Unwary • Not exempt from ERISA just because employees pay for entire premiums • Key to ERISA exemption = no employer endorsement • If not designed and structured properly, a voluntary plan could become part of your ERISA group health and welfare plans • Impact: • 5500 reporting • Plan documents/ SPDs (wraps can help) • Claims procedures, statements of ERISA rights, etc. Isler Dare, P.C.
Voluntary Benefit Programs Key Elements to Ensure Voluntary Benefits Remain Exempt from ERISA • Plan must be completely voluntary • No employer contributions – employees pay all • Limited activity by Employer • May permit insurer to publicize, provide employee information to insurer • May collect premiums by payroll deduction • May remit premiums to insurer • No endorsement from Employer – Avoid: • Selecting insurer • Negotiating plan terms • Using employer’s name/associating plan with other employer plans • Recommending plan to employees • Saying ERISA applies • Allowing use of employer’s cafeteria plan • Assisting employees with claims or disputes Isler Dare, P.C.
Retirement Security Trends 2014 Headlines Dominating Retirement Planning • Enhanced scrutiny (IRS, DOL and accountants performing annual compliance audits for 5500s) • Emphasis on fee disclosure has shifted to assessment of reasonableness of fees and restructuring of ERISA budgets and revenue-sharing • Continued focus on retirement readiness for employees, and what steps the employer can take in designing and monitoring its 401(k) plan and investments to help employees reach this goal Isler Dare, P.C.
Retirement Security Trends • Roth Account Options in 401(k) Plans • Slower pick up • More popular with younger demographics • For 2014/2015 – Conversions of existing 401(k) accounts to Roth accounts through an “in-plan” conversion • Guidance received late 2013 • Biggest barrier: capacity of providers to implement the educational outreach and recordkeeping burdens that come with adding this feature Isler Dare, P.C.
Retirement Security Trends • Auto enrollment and auto escalation • Design philosophy – balancing paternalistic approach with retirement readiness • Increasing in popularity • Comfort level with auto enrollment/opt outs should continue to grow as that becomes part of a mandatory element of health plans under health reform • Starting at higher levels • Minimum enrollment level is now typically at 3% • Often paired with auto escalation at 1%/year until workers reach maximum match (which is often based on deferring 6% of pay) Isler Dare, P.C.
Retirement Security Trends • Enhanced investment education to optimize retirement readiness • Focus on fees will be complimented by new guidance on target date funds • How should plan fiduciaries respond? • Mine and analyze data for plan statistics • Develop educational campaign/strategy for year • Leverage resources with recordkeepers • Targeted mailings to eligible, not contributing • 24/7 Webinars about asset allocation Isler Dare, P.C.
Additional Resources • International Foundation of Employee Benefit Plans, 2013 Survey Employer-Sponsored Health Care: ACA’s Impact • http://www.ifebp.org/pdf/research/2103ACAImpactSurvey.pdf • Aon Hewitt 2013 Health Care Survey • http://www.aon.com/attachments/human-capital-consulting/2013_Health_Care_Survey.pdf • Towers Watson 2013 Survey: Voluntary Benefits and Services • http://www.towerswatson.com/en-US/Insights/IC-Types/Survey-Research-Results/2013/07/voluntary-benefits-and-services-survey • American Benefit Council Survey on 401K Trends and Retirement Rewards • http://www.americanbenefitscouncil.org/documents2013/abc-waw-surveytrendsin401kplans-2013.pdf Isler Dare, P.C.
Questions? Andrea I. O’Brien 703-748-2690 email@example.com