Author: Site Staff

The Internal Revenue Service has extended the deadline to Dec. 31, 2011, for employers to formally amend their defined benefit pension plans to reflect plan design changes mandated by several recent federal laws.

The one-year extension granted by the IRS, in Notice 2010-77, does not change the effective dates of various requirements, such as one that requires full vesting of benefits earned by employees in cash balance plans after three years of service.

The one-year extension will give employers more time to prepare plan documents, which will be very welcome, said Alan Glickstein, a senior consultant with Towers Watson & Co. in Dallas.

Notice 2010-77 may be viewed online at www.irs.gov. 

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

 

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A high-profile commission is expected to vote Dec. 3 on a series of wide-ranging recommendations—including medical malpractice reforms and phasing out the tax-favored status of employer-provided health care benefits—as part of a comprehensive plan to reduce the federal budget deficit.

The bipartisan National Commission on Fiscal Responsibility and Reform formally released its report Dec. 1. Among other things, the report says that medical malpractice reform could save $17 billion through 2020.

The commission recommends several policies, including modifying the collateral source rule to allow outside sources of income, such as workers’ compensation, collected as a result of an injury to be considered in determining awards and imposing a statute of limitations on medical malpractice lawsuits. The report also calls for the creation of special “health courts” to hear medical malpractice cases.

Although the commission does not specifically endorse statutory caps on punitive and noneconomic damage awards in medical malpractice cases, the report notes that many commission members support caps and that “we recommend that Congress consider this approach and evaluate its impact.”

The report, in what it calls an “illustrative proposal,” suggests that gradually, starting in 2014, employees would be taxed on employer health care plan contributions. By 2038, all employer health care plan contributions would be added to employees’ taxable income.

Under current law, employer contributions—regardless of the amount—are excluded from employees’ taxable income. However, under the new health reform law, starting in 2018, a 40 percent excise tax will be imposed on costs exceeding $10,200 for individual coverage and $27,500 for family coverage. The tax would be paid by insurers and, in the case of self-funded plans, by third-party claims administrators.

The report also recommends giving the board of the Pension Benefit Guaranty Corp. authority to raise premiums that employers with defined benefit plans pay the PBGC.
The base annual premium now is $35 per plan participant, and sponsors of underfunded plans pay an additional premium of $9 per $1,000 of underfunding.

Under the current law, except for an automatic adjustment based on the growth in wages, only Congress has authority to boost PBGC premiums.

Giving the board of the PBGC, which has a $23 billion deficit, authority to raise premiums “would sharply reduce the likelihood of a government rescue” of the PBGC in the future, the report said.

The likelihood of Congress acting on any of the proposals isn’t known. Taxing health care benefits, for example, is extremely controversial, and it would be a big “stretch” for Congress to completely eliminate the tax exclusion, said Frank McArdle, a principal with Aon Hewitt Inc. in Washington.  

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

 

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The trustee for the pension plans of two closed New York garment companies is charged in a Labor Department lawsuit with transferring more than $4.6 million in plan assets to family members and other businesses in which she had an interest, confirmed John Chavez, a Labor Department spokesman.

The lawsuit, filed in U.S. District Court in New York on Nov. 23, alleges that Colette Mordo and other plan trustees and fiduciaries violated their fiduciary duties transferring the money as well as preventing eligible employees from participating in the two plans for the defunct Manhattan companies—Sadimara Knitwear Inc. and Stallion Knits.

The lawsuit states Mordo and the other plan fiduciaries had prevented plan participants from receiving the full benefits they were entitled to receive from the plans for the businesses owned by the Mordo family.

Mordo; her husband, Matthew Mordo; and son, Alan Mordo, were all participants in the plans, according to the news release. Matthew and Alan Mordo are both deceased.

The lawsuit seeks to require Mordo to restore all losses to the plans,
“plus lost opportunity costs that resulted from her improper actions, and to permanently bar her from serving as a fiduciary to any ERISA-covered plan in the future,” a Labor Department news release said.

“Such flagrant misuse of pension plan assets is intolerable,” added Phyllis Borzi, assistant secretary of labor for the Employee Benefits Security Administration, in the release.

The Sadimara Knitwear Inc. Defined Benefit Pension Plan had $1.72 million in assets, and the Stallion Knits Defined Benefit Pension Plan had $1.53 million, both as of Dec. 31, 2008, according to the company’s Form 5500 filings.

Mordo could not immediately be reached for comment. 

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

 

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Group health care plan costs jumped an average of 6.9 percent in 2010, the biggest increase since 2004, according to a survey of more than 2,800 employers released Nov. 17 by Mercer, which is based in New York.

That 6.9 percent increase brought costs up to an average of $9,562 per employee compared with an average of $8,945 per employee in 2009, according to the survey.

By contrast, costs rose by an average of 5.5 percent in 2009, the lowest increase in more than a decade, while costs climbed an average of 6.3 percent in 2008. Between 2005 through 2007, costs climbed by an average of 6.1 percent in each of those three years.
Mercer consultants said the spike in costs may be the result of two factors: medical providers boosting their fees and charges and an increase in utilization.

“Higher prices for health care services seem to be part of the equation, but if the recession caused a slowdown in utilization last year, we may also be seeing the effect of employees getting care they’ve been putting off,” Susan Connolly, a partner in Mercer’s Boston office, said in a written statement accompanying the survey.

To prevent even bigger cost increases in 2011—caused in part by meeting requirements, such as extending coverage to employees’ adult children up to age 26, set by the health care reform law and which kick in next year—many employers intend to make plan design changes, such as shifting more costs to employees or changing insurers.

Without health plan changes, employers predicted cost increases of about 10 percent next year. With design and other changes, employers expect to hold down their actual cost increase to an average of 6.4 percent in 2011, according to the survey.

Employers already are taking action to try to hold down plan cost increases. For example, among preferred provider organization plans imposing a deductible, the average deductible for individual coverage through in-network providers jumped by more than $100 in 2010, rising to an average of $1,200.

Similarly, the percentage of PPO sponsors that do not require a deductible for individual coverage from in-network providers fell to 16 percent in 2010, down from 22 percent in 2009.

In addition, more employers stopped offering health maintenance organizations—the most expensive plan design, with costs in 2010 averaging $8,892 per employee—while more employers added consumer-driven health care plans, such as plans linked to health savings accounts, with costs averaging $6,759 per employee.

In 2010, 26 percent of employers offered an HMO, down from 28 percent in 2008. As recently as 2005, just over one-third of employers offered an HMO.

On the other hand, this year, 17 percent of employers offered a CDHP linked to an HSA or health reimbursement arrangement, up from 15 percent in 2009. In 2005, just 2 percent of employers offered a CDHP.

The nation’s biggest employers have especially embraced CDHPs. This year, 51 percent of employers with at least 20,000 employees offered a CDHP linked to an HSA or HRA, up from 43 percent in 2009.

Among those jumbo employers, 15 percent of employees enrolled in CDHPs this year, up from 9 percent in 2009.

Copies of the National Survey of Employer-Sponsored Health Plans will be published in March.  

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

 

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