Author: Site Staff

President Barack Obama has his eye on automatic enrollment in individual retirement accounts and an expansion of the Saver’s Credit Act as a way to encourage Americans to prepare for retirement, according to a retirement policy expert.

“As the year unfolds, the president will pick a signature issue … such as the auto [IRAs], while Congress will drive a range of issues, such as 401(k) fee disclosure and scrutiny of plan investments,” said James M. Delaplane Jr., a partner at Davis & Harman in Washington.

Delaplane hosted a presentation, “Retirement Policy Update: What the Financial Crisis and the New Administration and Congress Mean for America’s Retirement System,” on Tuesday, March 31, at Investment News’ third annual Retirement Income Summit in New York.

“The administration really cares about this auto IRA, and there are conversations between the White House and Capitol Hill about making this an early win for the Obama administration. The odds of it happening are way, way up,” Delaplane said.

Amid the crisis and depleted retirement accounts, there is suddenly a new focus on the shift of risk to participants, resulting in heightened attention to investment issues and the extent of equity exposure, he said.

Delaplane anticipates greater legislative and regulatory attention on investment oversight, with particular scrutiny on target-date funds.

The equity exposure varied wildly in funds with a target of 2010. Some had equity exposure as low as 8 percent, while others were as high as 62 percent.

“One 2010 fund was down 40 percent, and this is for someone on the doorstep of retirement,” Delaplane said. “Those statistics get lawmakers fired up.”

As for the investment advice provision in the Pension Protection Act of 2006, Delaplane said he expects that Obama will tighten regulations.

“Think about where you were pre-PPA and the constraints you had in that environment. We could be going back to pre-PPA,” Delaplane said.

“The crisis has changed the environment, raised the odds for reform on big issues and increased voter retirement anxiety, but it also opens discussion on fundamental reforms and changes the retirement policy priority list.”

Filed by Darla Mercado of Investment News, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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Two members of the House of Representatives said they plan to introduce legislation on Thursday, April 2, that would establish a system of federal regulation for insurers.

In a joint statement Wednesday, Reps. Melissa Bean, D-Illinois, and Ed Royce, R-California, said the National Insurance Consumer Protection Act “would create a robust federal regulator for insurance to act as an alternative to the antiquated, non-uniform system of state insurance regulators currently in operation.

”The statement, however, provided no further detail regarding the proposal.An earlier outline of the bill called for setting up an office of national insurance, which would set guidelines for national insurers and oversee their financial and market conduct.

In addition, that outline said the legislation would establish a national guaranty corporation for national insurers if a state guaranty association does not provide policyholders a level of protection equivalent to the model standards of the National Association of Insurance Commissioners.The outline also included establishing a systemic risk regulator to monitor insurers

The joint statement cited the “meltdown” of American International Group Inc. and the crisis in the financial system as a whole “as proof of the vital need for regulatory reform of the insurance sector.”In the last Congress, Reps. Bean and Royce introduced legislation that would have set up a system of optional federal charters for insurers.

When the outline of the latest bill became public in February, some critics expressed concern that federal regulation might not be optional but mandatory for some large insurers.

Filed by Mark A. Hofmann of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com

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There is a silver lining in these dismal economic times, according to AARP: a resurgence in savings, particularly for retirement.

“For those just entering the workforce, and even for boomers getting closer to retirement, the notion of saving for retirement is back in fashion for all age groups,” the Washington-based seniors group said in a study issued Wednesday, April 1.

The AARP telephone survey of 1,035 Americans, conducted February 27 through March 8, found that nearly eight in 10 adults have either started to cut back spending or have started to save more money in the past year for emergencies and their retirement.

Of those, almost three in four are doing so to save more for retirement.

However, while saving has taken on a new priority in most households, almost two-thirds plan to spend at least some of the 2009 stimulus benefit.

Filed by Sara Hansard of Investment News, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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The chairman of the House Oversight and Government Reform Committee and the panel’s top Republican have asked federal authorities to provide the committee with confidential reports prepared by a lawyer who was hired by American International Group Inc. to monitor the insurer and provide periodic reports to federal regulators.

Letters requesting the documents were sent Tuesday, March 31, to the Department of Justice and the U.S. Securities and Exchange Commission by committee Chairman Edolphus Towns, D-New York, and Rep. Darrell Issa, R-California.

“With taxpayers now having an 80 percent stake in AIG, we believe that review of these reports is critical for Congress to better understand how AIG became financially crippled and in assessing whether taxpayer dollars are being properly used for the stabilization of this once-prosperous company,” Reps. Towns and Issa wrote.

The request involves a November 2004 deferred-prosecution agreement under which AIG was required to install an independent monitor to oversee business practices at the company, the congressmen said.

They said AIG hired James Cole, a partner in the Washington office of law firm Bryan Cave, in early 2005 and that his responsibilities broadened in November 2006 after a separate settlement required that he monitor and examine AIG’s financial reporting as well as provide oversight of corporate governance.

“Under the provisions of these settlements, Cole evidently had routine access to the highest levels of the company and participated as an observer at AIG board meetings,” the congressmen wrote. “In effect, Cole had a seat at the table as the company decided to oust two CEOs, developed its strategy in the midst of the housing bubble and its subsequent collapse, and made critical decisions concerning AIG Financial Products, allocating retention payments, generating options to produce liquidity, and ultimately requesting taxpayer capital injections from the Federal Reserve and Treasury now amounting to $180 billion.”

The committee is scheduled to hold the first in a series of hearings into the AIG situation on Thursday, April 2, with former AIG chairman and CEO Maurice R. Greenberg slated to testify.

Filed by Mark A. Hofmann of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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Dear Looking Inside and Out:

This is a great question, yet one that too few hiring managers and HR professionals take the time to ask. There are of course the obvious pros to internal recruiting:

• Communicates that career opportunities exist within the organization
  
• Usually less costly and faster than an external search
  

And the obvious pros to hiring externally:

• A chance to introduce new ideas and fresh perspectives into the organization
  
• An opportunity to enhance diversity
  

Looking deeper, we find research that shows hiring from within also contributes to shareholder value. Another overlooked advantage is the enhanced ability to assess internal candidates, since more information is readily available from internal sources (i.e., performance management system, people who have worked with the candidate). These people also are already familiar with the company culture and “ways of getting things done” and “staying out of trouble.”

The often-overlooked advantage of hiring externally includes finding a qualified person that is fully trained, experienced and ready to contribute immediately upon being hired.

Each recruiting option also has some drawbacks. Internal hiring may lead to:

• Narrow thinking and stale ideas (inbreeding)
  
• Possible discontent of rejected applicants
  
• Diversity goals becoming more difficult to achieve
  

Some of the primary disadvantages of external recruiting:

• Takes longer and costs more
  
• Too often, little reliable information exists about candidate’s ability to fit with rest of organization
  
• Could destroy incentive of present employees to strive for promotion
  
• Takes longer for an outsider to become familiar with current systems
  
• Current organization members may fight new ideas
  

SOURCE: Richard Greenberg, president, The BreakThru Alliance, Marina del Rey, California, March 30, 2010.

LEARN MORE: An organization that tries to fill available positions from within should define the scope of the internal hiring policy and hold managers responsible for identifying staffing needs.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.

Ask a Question

Dear Workforce Newsletter

Dear Bitten by COBRA:

The American Recovery and Reinvestment Act (ARRA) created a 65 percent COBRA premium subsidy that is available to help unemployed workers continue their health insurance. Details about how the subsidy works are available online from the Department of Labor. The subsidy is available for COBRA periods beginning after February 17, 2009, and can last as long as nine months. Individuals must have a qualifying event relating to involuntary termination of employment that occurs on or after September 1, 2008, and before December 31, 2009.

The COBRA premium assistance subsidy phases out for individuals whose modified adjusted gross income exceeds $125,000, or $250,000 for those filing joint returns. Taxpayers with modified adjusted gross income exceeding $145,000, or $290,000 for those filing joint returns, do not qualify for the subsidy.

The income limitation applies to the income received in the same taxable year in which the subsidy is received. So, for example, if the subsidy is received in 2009, but the individual has a modified adjusted gross income for 2009 exceeding $145,000, he/she would not be eligible for the subsidy.

The calculations as to the income limitation are done when the individual completes tax returns for that year. The tax due for that taxable year would be increased by the amount of the premium assistance subsidy that the individual received during the year. A high-income worker can opt out of the subsidy by notifying his or her health plan that they do not want it.

If a worker receives a lump-sum severance payment, the severance payment would not automatically delay eligibility for the subsidy. Employees should be encouraged to carefully examine the terms of any subsidy arrangement, and consult with their attorney or tax preparer to determine whether it would affect their eligibility for the COBRA premium subsidy.

If, for example, the severance payment is all cash, it would likely not affect eligibility for the subsidy, although it could affect the income limitation if it is high enough. However, if the severance payment is expressly to pay for COBRA expenses, it could result in the worker losing eligibility for the COBRA premium assistance subsidy, because an individual cannot receive the COBRA premium assistance subsidy if their employer pays for COBRA.

SOURCE: Kathryn Bakich, senior vice president and national director of health care compliance, the Segal Co., Washington, March 2, 2009

LEARN MORE: An earlier article discusses how the recently enacted stimulus bill will affect COBRA.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.

Ask a Question

Dear Workforce Newsletter

The Internal Revenue Service has released eagerly anticipated guidance on the new federal COBRA premium subsidies available to employees who lose their jobs.

The guidance, released Tuesday, March 31, resolves numerous questions—such as clarification of situations when laid-off employees are entitled to the subsidy—that employers have been asking for since the subsidy legislation was signed into law in February.

The subsidy, included in a broad economic stimulus measure, is available to employees who are involuntarily terminated between September 1, 2008, and December 31, 2009. A 65 percent federal premium subsidy is provided to eligible beneficiaries for up to nine months, until they become eligible for coverage from a new employer or a spouse’s employer, or until they become eligible for Medicare.

Lawmakers put the cost of the federal subsidy at about $25 billion, enabling as many as 7 million jobless people and their families to retain health care coverage.

Congress, eager to pass the legislation quickly, left the role of providing detailed guidance on the subsidy to the regulatory agencies, with the first major batch provided by the IRS in a question-and-answer format spanning 27 pages.

The most significant guidance—crucial for helping employers determine who is eligible for the subsidy and who is not—is defining what constitutes an “involuntary termination of employment” and then providing numerous examples of involuntary termination.

In the guidance, the IRS defines an involuntary termination as the independent exercise of an employer’s authority to terminate employment when the employee was willing and able to work. The determination of whether a termination is involuntary is based on all the facts and circumstances, not on whether a termination is designated as voluntary or a resignation.

For example, the IRS says, retirement could be considered an involuntary termination if the employee knew he or she would be terminated unless the individual retired.

In addition, the resignation of an employee who left due to a “material change” in the geographic location of the employer would be considered an involuntary termination.

The IRS guidance extends to many other areas as well, including how the premium subsidy is to be calculated when the employer pays part of the COBRA premium, whether the subsidy is available to those who continue only dental coverage, and the length of the subsidy for employees who are involuntarily terminated several times while the subsidy law is in effect.

The IRS guidance can be viewed here: Notice 2009-27. (Link opens an Acrobat document.)

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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The top executive at UnitedHealth Group Inc.’s Ingenix Inc. subsidiary conceded Tuesday, March 31, that UnitedHealth’s ownership of the unit created the perception of a conflict of interest, but he denied allegations that the Ingenix databases were flawed and understated charges.

Ingenix collects provider health care charges in developing cost databases that insurers use in determining what are usual-and-customary fees. Several insurers in recent months have agreed to stop using the databases amid an investigation by New York Attorney General Andrew Cuomo into whether the practice resulted in artificially low reimbursement rates for out-of-network services.

“There is an important difference between an inherent conflict and the actual practice of bias—the latter is something neither I nor my employees nor our parent company would ever tolerate,” Ingenix CEO Andy Slavitt said at a Senate Commerce Committee hearing.

Slavitt said that while the company was “myopic” in not recognizing the perceived conflict of interest, it disagrees with any allegations of fraud in the way it collected and provided information.

Committee Chairman John D. Rockefeller IV, D-West Virginia, said Ingenix’s practices resulted in usual-and-customary charges being understated and health care plan enrollees who went outside their health care plans’ managed care network paying more than they should have.

UnitedHealth, as part of an agreement with the New York Attorney General’s Office, has agreed to transfer the Ingenix provider charges databases to an independent, nonprofit entity.

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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The Internal Revenue Service has announced that defined-benefit plans will be able to use a spot-rate yield curve from as early as four months before their plan year begins to calculate their pension plan funding requirements for 2009.

“Thus, for a calendar year plan with a January 1, 2009, valuation date, the IRS will not challenge the use of the monthly yield curve for January 2009, or any one of the four months immediately preceding January 2009,” the IRS said in a statement.

The IRS had previously proposed—but never made into a rule—that plans be required to use the spot rate based on the interest rate in effect for the month preceding the beginning of the plan year.

That meant calendar-year plans would have had to use the lower rates in effect in December 2008, rather than the higher interest rates in effect in October or November of that year, to calculate their funding obligations. Using the lower December rates would have meant higher liabilities for the plans and the need for funding increases.

“Today’s announcement is welcome news for many employer defined-benefit plan sponsors that are facing unprecedented funding obligations as a result of the economic downturn,” James Klein, president of the American Benefits Council, said in a statement.

Filed by Doug Halonen of Pensions & Investments, a sister publication of Workforce Management To comment, e-mail editors@workforce.com.

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Republic Windows & Doors Inc. violated federal labor law when it abruptly closed its Goose Island factory in December, the Chicago office of the National Labor Relations Board has determined.

Federal investigators found the window manufacturer failed to negotiate in good faith with its unionized workers and ducked its collective-bargaining obligations when it created an alter-ego company in Iowa, according to a decision reached by the office Friday.

A Republic Windows representative was not available for comment.

Joseph Barker, director of the NLRB’s Chicago office, plans to file a formal complaint against the company unless a settlement can be reached. If Republic and its workers fail to reach a settlement, the complaint will go before an administrative judge who will issue a ruling.

Republic Windows made national headlines in December when its workers occupied the factory for six days to protest the manufacturer’s sudden closing and failure to pay severance. Federal law requires employers to notify workers at least 60 days before a plant closure, or to pay workers 60 days’ worth of wages. The sit-in enabled the workers to win health benefits and $1.75 million in wages owed to them.

Since then, Serious Materials of California has stepped in to buy the business and has rehired many of the 300 workers who lost their jobs when Republic Windows closed.

While the regional board’s ruling favored the workers, it also highlighted problems with federal labor law, said Leah Fried, an organizer for United Electrical Workers, which represents the Republic workers.

“You and I pay more for a parking ticket than that employer will pay for violating federal labor law,” she said. “The frustrating thing is there’s not a real deterrent in the law. … If workers hadn’t taken over their factory, they wouldn’t have gotten anything.”

Filed by Claire Bushey of Crain’s Chicago Business, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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