Category: Benefits

Boeing Inc. said Wednesday, March 31, that it will take a $150 million charge against net earnings in the first quarter this year to reflect a change in the tax treatment of federal subsidies provided to employers that offer prescription drug coverage to Medicare-eligible retirees that is at least equal to Medicare Part D.

Under current law, the government provides tax-free reimbursement of 28 percent of employers’ retiree prescription drug expenses that fall within a certain range. But health care reform legislation signed into law this week by President Barack Obama will alter that tax treatment beginning in 2013.

While the tax-free subsidies will continue, employers receiving them no longer will be allowed to take a tax deduction for prescription drug expenses equal to the amount of the subsidy.

Under U.S. accounting rules, employers are required to immediately recognize the impact of such a change on their financial statements.
Boeing’s announcement came on the heels of several other charges announced by other U.S.-based companies. They include:

• AT&T Inc., which last week said it would take a noncash charge of about $1 billion.

• Deere & Co., which reported a $150 million charge.

• Caterpillar Inc., which reported a $100 million charge.

• Prudential Financial Inc., which reported a $100 million charge.

• 3M Co., which reported a noncash charge of up to $90 million.

• AK Steel Holding Corp., which reported a noncash charge of about $31 million.

• Illinois Tool Works Inc., which reported a $22 million charge.

• Valero Energy Corp., which reported a charge of $15 million to $20 million.

• Honeywell International Inc., which reported a $13 million charge.

• Goodrich Corp., which reported a charge of about $10 million.

• New York-based Allegheny Technologies Inc., which reported a $5 million charge.

Meanwhile, Verizon Communications Inc. said in an 8K filing last week that it is evaluating the impact of the legislation on its effective tax rate, “which may be material.”

General Electric Co. said it will not take an earnings charge in response to the legislation because it converted its retiree prescription drug benefits in 2009 to a Medicare-approved plan provided through a third-party administrator and is no longer receiving a federal subsidy.

In statements, all of the companies that took one-time charges said they will be taken in the first quarter of 2010.

Four companies—AT&T, Verizon, Caterpillar and Deere—already have been invited to testify next month at a hearing by the House Energy and Commerce Committee on the subject.

In reporting its $150 million charge, Boeing said the impact of the loss of the tax deduction was not contemplated in guidance that the Chicago-based aircraft manufacturer issued January 27, but said the guidance will be updated when its first-quarter results are released.

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

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Ford Motor Co. will be allowed to contribute $13.2 billion in company securities to the United Auto Workers’ voluntary employees’ beneficiary association fund under an exemption approved Thursday, March 25, by the Labor Department.

Ford filed its request for the exemption with the Labor Department’s Employee Benefits Security Administration in December. Ford sought the exemption to allow the UAW VEBA fund to hold Ford securities in excess of the amount permitted from an employer under ERISA. The Ann Arbor, Michigan-based VEBA has estimated assets of $44.4 billion, including the Ford contribution.

The exemption will permit Ford to carry out an agreement with the UAW to contribute two notes totaling $13.2 billion, bearing a 9 percent interest rate. Under the agreement, Ford has the option of paying up to half of the notes’ redemption in Ford stock or in cash.

In all, Ford is contributing $15 billion to the UAW VEBA, including $1.8 billion in diversified assets that were in a Ford-controlled VEBA. In addition, Ford will contribute warrants, whose value has not been estimated, enabling the UAW VEBA to purchase 362 million shares at $9.20 a share. Ford stock closed at $13.80 in trading today. Ford has 3.3 billion shares outstanding.

“We transferred all the assets on December 31, so this [exemption] was an after-the-fact blessing, which we needed,” said John Stoll, Ford spokesman.

In its exemption approval, EBSA officials said, “Ford explains that its option to contribute securities instead of cash is itself a form of protection for the VEBA” because Ford’s “continued commercial viability is necessary to ensure that the VEBA trust is fully funded. Ford asserts that permitting it to make contributions in Ford common stock, rather than cash, gives Ford the flexibility to avoid cash payments in low liquidity environments. Moreover, Ford maintains that it is not in anyone’s interest to compel a payment that pushes Ford into insolvency, thereby jeopardizing the new VEBA’s funding going forward.”

With the contributions, Ford will end its obligations to fund retiree medical benefits of its UAW-represented employees under a 2008 settlement agreement between the company and the UAW. 

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

 

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Legislation compelling employers to provide workers with up to nine paid sick days was scheduled to be reintroduced Thursday, March 25, by New York Councilwoman Gale Brewer, setting the stage for a battle between business groups intent on killing or at least gutting the bill and the labor-backed Working Families Party, which has made its passage a top priority.

The new bill is expected to contain changes from the one that was debated last year—notably, a shift in the definition of a small business, from fewer than 10 employees to fewer than 20. The bill will require small businesses to give workers five sick days and larger ones to provide nine. Fines would be levied at a rate of $1,000 per violation.

“No one opposes the right of employees to stay home when they’re sick without fear of retribution,” says Matthew Greller, an attorney at Tonio Burgos & Associates who is lobbying against the bill. “But we don’t think in this time in this recession should be proposing another unfunded mandate on businesses.”

Brewer’s office insists the councilwoman has listened to the business community’s reservations and incorporated their suggestions into the new bill—which is aimed at an estimated 1.5 million New York workers who get no paid sick time.

The bill is expected to have 35 sponsors, compared with 39 the last time around. But several council newcomers who are members of the just-launched Progressive Caucus—including Jumaane Williams and Daniel Dromm—have replaced officials who were only lukewarm supporters of the idea. The caucus has made adoption of paid sick days one of its founding priorities.

Supporters planned to rally outside City Hall to press for passage.

“President Obama’s health care reform is a big leap forward, but if you’re like the 48 percent of New York City’s workers that can’t take a day off without losing pay, seeing a doctor when you need to may still be impossible,” says a Working Families Party spokesman. 

Filed by Daniel Massey of Crain’s New York Business, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

 

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President Barack Obama on Tuesday, March 23, signed the sweeping health care reform legislation that was passed by the House of Representatives on Sunday night.

The legislation will massively revamp the nation’s health care delivery and financing system. The biggest changes would be expanding Medicaid and establishing federal health insurance premium subsidies to the lower- and middle-income uninsured.

Congressional budget analysts estimate those changes could result in as many as 32 million uninsured gaining coverage. The Senate will begin debate on a second reform measure, a so-called reconciliation bill that also was approved by the House. That bill is designed to alter certain aspects of the main reform measure.

The legislation is packed with provisions that will directly affect employer-provided health care plans.

Some will require almost immediate action by employers. For example, within six months after enactment, employers will have to amend their plans to extend coverage to employees’ adult children up to age 26, if those dependents are not eligible for other group coverage.

Bigger changes are further down the road. By 2013, employers will have to redesign their flexible spending accounts to impose a $2,500 annual limit on contributions. There is no limit now, though employers typically impose limits between $4,000 and $5,000.

Also in 2013, employers providing prescription drug coverage to Medicare-eligible retirees will lose a tax break. Under a 2003 law, employers providing prescription drug coverage at least equal to Medicare Part D receive tax-free payments from the government equal to 28 percent of what they spend—within a certain range—on retiree prescription drug coverage.

The subsidy will continue under the legislation, but employers will be barred from taking a tax deduction on expenses equal to the subsidy starting in 2013.

That change in tax law may lead some employers to drop the coverage, benefit experts say.

Starting in 2014, employers with at least 50 employees that do not offer coverage will pay a tax of $2,000 for each employee without coverage. In computing the tax, the first 30 employees would not be counted.

Also in 2014, a new affordability test will kick in that could result in employers facing assessments unless they redesign their plans. If the premium paid by an employee exceeds 9.5 percent of their income and the employee uses federal health insurance premium subsidies to purchase coverage through new state health insurance exchanges, the employer would have to pay an assessment of $3,000 for that employee.

Employers most exposed to that assessment will be those with relatively low-paid workforces and that require employees to make hefty premium contributions relative to their income.

Starting in 2018, a 40 percent excise tax would be imposed on health insurance premiums exceeding $10,200 for single coverage and $27,500 for family coverage. The cost thresholds triggering the tax will be slightly higher for plans covering retirees or employees in certain high-risk industries.

In 2019, the thresholds would rise to match the increase in the Consumer Price Index, plus one percentage point. 

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

 

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More people are rolling over their 401(k) savings into IRAs when they leave their jobs or retire, according to research published Wednesday, March 17, by Charles Schwab & Co. Inc.

The research found 69 percent of assets held by 401(k) participants were distributed from former employers’ plans within 12 months of leaving a job, confirmed Eric Hazard, a spokesman for Schwab. Thirty-one percent kept their money in their former employer’s 401(k) plan.

Of the assets that were moved, 80 percent were rolled over into IRAs, 10 percent were taken in cash distributions, 8 percent were moved into new employer plans, and 2 percent were taken in other forms of distributions, according to a Schwab statement on the report.

The research was based on records of 12,198 employees who left jobs in the fourth quarter of 2008; Schwab then checked where the employees had distributed their 401(k) assets by the end of 2009. The data were obtained from a database of 1.5 million participants in Schwab-administered 401(k) plans, Hazard said.

“We are definitely seeing an uptick in the number of 401(k) plan participants who choose to roll over plan assets instead of cashing out or leaving savings with a previous employer,” Catherine Golladay, vice president of 401(k) advice and education at Schwab, said in the release.

In an earlier study, Schwab found that among participants who left an employer in the first quarter of 2008, 57 percent of assets were moved out of a former employer’s plan by the first quarter of 2009, while 43 percent of assets remained in the plan, the news release said.

Of those distributed assets, 75 percent were rolled over into IRAs, 14 percent were taken as cash distributions, 7 percent were transferred to new employer’s plans, and 4 percent were taken in other forms of distributions, Hazard said.

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

 

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Sen. Chuck Grassley, R-Iowa and ranking member of the Senate Finance Committee, has asked Health and Human Services Secretary Kathleen Sebelius to review the Food and Drug Administration oversight of health information technology safety.

In a letter released Wednesday, February 24, Grassley asked Sebelius to outline health care IT safety monitoring at HHS, the FDA and elsewhere and assess whether regulators require additional authority.

Grassley, who last month asked roughly 30 hospitals for information on health IT and surveyed vendors in October 2009, also released a letter to the Health Information and Management Systems Society. Grassley asked the trade group to respond by March 10 to questions about recommendations put forward in 1997 for voluntary and regulatory oversight of health care information technology.

The recommendations, published in the Journal of the American Medical Informatics Association, called for local oversight “whenever possible”; FDA oversight of the riskiest clinical software and labeling for most health IT; and an industrywide code of good business practices.

 

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Filed by Melanie Evans of Modern Healthcare, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

The Labor Department has released proposed regulations that prohibit financial advisors giving advice to 401(k) plans—or to their employer or the employer’s affiliates—from receiving extra compensation because the plan sponsors bought a product recommended by the advisor.

“They can’t take advantage of the exemption if anyone in that chain gets compensated [from the advice provided,]” Assistant Labor Secretary Phyllis Borzi said Friday, February 26, in a conference call discussing the proposed rules.

The proposed regulations would make it more difficult for advisors affiliated with broker-dealers and insurance companies to provide advice to plan participants, industry observers said. The rules also may pose huge challenges for actively managed funds in the retirement space.

Many advisors had hoped that affiliates of the advisor’s employer would be exempt from the rules.

“We are disappointed the Department of Labor decided to move in this direction after having withdrawn the previous final regulations and class exemption,” Elizabethc managing director of government affairs of the Securities Industry and Financial Markets Association, said in a statement. “The proposed regulation, if approved, will do little to expand American’s access to investment advice.”

The proposal would apply to advisors who recommend target-date funds, Borzi said. One of the major criticisms of target-date funds, she noted, is that they often are made up of the investment managers’ proprietary portfolios.

Under the proposal, if an advisor recommends a fund to plan participants and the advisor’s compensation is affected directly or indirectly by that recommendation, it is considered a prohibited transaction.

The proposed rules also allow for the use of independent computer modeling for advice. The factors the model can take into account, however, caused some observers to wonder if it would create an uneven playing field in favor of index funds.

Specifically, the rules suggest that while computer modeling can take into account such factors as fees and expenses, it may not make sense to take into account historical performance when generating advice.

“If you aren’t using historical performance, you are removing one of the primary justifications for fees for actively managed funds,” said Bradford P. Campbell, an attorney at Schiff Hardin who used to work at the Labor Department’s Employee Benefits Security Administration.

Observers predict that the fund industry will weigh in heavily on this issue during the comment period since it could have huge effects on actively managed funds.

“It means that actively managed funds in the retirement marketplace would very much be in question and could lose market share,” said Ryan Alfred, co-founder and president of BrightScope Inc., which rates 401(k) plans.

When asked about this issue on the conference call Friday, Borzi said she welcomed comment on this question of historical performance.

“There is a difference in opinion as to what extent historical returns are a predictor of future performance,” she said. “If people have concerns with how we have structured the regulation and want to address some of the questions, we urge everyone to participate in the discussion.”

The Investment Company Institute is reviewing the proposal and plans to issue a comment letter, spokeswoman Ianthe Zabel said.

“ICI shares the DOL’s goal of increasing access to advice under conditions that protect plan participants. The new DOL proposal largely tracks the rule published last year but, in addition, the DOL is posing a number of questions related to generally accepted investment principles,” she said in a statement. “ICI is reviewing the proposal and questions carefully and, working with ICI members, looks forward to filing a detailed comment letter.”

 

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

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Wages and benefits offered by a company could influence whether it is chosen to do work for the federal government under new rules being considered by the Obama administration.

An early February letter from two members of Congress speculates that President Barack Obama’s Middle Class Task Force has drafted an executive order for Obama to sign that would implement the regulation.

Under the proposal, which was first reported by news site the Daily Caller and The New York Times, a company’s fitness for being awarded a federal contract would be determined in part by its compensation and leave policies.

“Positive weight in the source selection process is given to bidders based on the labor standards of their entire workforce,” says an administration document obtained by Workforce Management.

The standards would be measured by “whether the bidder pays a livable wage and provides quality, affordable health insurance; an employer-funded retirement plan; and paid sick days.”

The initiative would force contractors to meet wage standards above those set by current law. Advocates say it would increase job quality for American workers, about 2 million of whom worked on federal contracts in 2006.

Opponents say the proposal would raise employment costs and make federal contracting prohibitive for small businesses.

The idea is being championed by the Services Employees International Union and the Center for American Progress, a left-leaning Washington policy organization.

David Madland, director of the American Worker Project at the Center for American Progress, said that contracting is a ripe area for rewarding companies that treat their employees well.

He said that the so-called High Road Contracting Policy will improve the service that the government receives and save taxpayer dollars because better wages will lead to higher productivity and product quality.

“It’s going to help workers; it’s going to help taxpayers; it’s going to help business,” Madland said.

The U.S. Chamber of Commerce and congressional Republicans oppose the plan, calling it a sop to unions that provide strong political support to Obama and other Democrats.

“This is an attempt by the unions to force their policy agenda on a wide swath of the economy by rigging the government procurement process,” said Glenn Spencer, executive director of the chamber’s Workforce Freedom Initiative. “Moreover, it could increase costs to the taxpayers by $100 billion a year at a time when we are struggling with unsustainable deficits.”

An administration memo acknowledges that the initiative would increase contract prices and “potentially negatively impact nonunion and small businesses.”

Madland maintains that by paying substandard wages and skimping on benefits, “low-road” contractors force their employees to turn to government for medical care and welfare benefits. He says that a high-road policy in Maryland has resulted in “negligible cost increases” for business.

The proposal looks familiar to Brett McMahon, vice president for business development at Miller & Long, a Bethesda, Maryland, construction firm. Companies in the building trades have long been the subject of union efforts to impose wage and benefit standards, he said.

“It’s sad that they want to inflict the same kind of damage on the rest of the economic sphere,” McMahon said. He warns companies in other industries: “Your life is about to change and you have no idea.”

McMahon contends that the “high-road” effort is being spurred by organized labor’s failure to gain congressional approval for the Employee Free Choice Act, a measure that would enable workers to form unions by signing cards rather than by voting in a secret-ballot election.

“They didn’t get card check so far,” McMahon said. “They desperately need somebody to remake the game for them.”

Madland dismisses any connection to labor law legislation.

“It has nothing to do with card check,” Madland said. “It’s about raising workers’ standards. It’s the kind of thing that is good for the whole country.”

Two House Republicans, however, assert that “high road” will hurt the companies that produce the jobs for the workers Madland is trying to protect.

“[I]t threatens to put unelected bureaucrats of the federal government in the business of approving or disapproving the employment and employee benefit practices of countless private-sector businesses large and small,” wrote Reps. Darrell Issa, R-California, and John Kline, R-Minnesota and ranking member of the House Education and Labor Committee, in a February 4 letter to Jared Bernstein, executive director of the White House Middle Class Task Force.  

Howard Radzely, a partner at Morgan Lewis in Washington, said companies should look for more regulatory moves by the administration in coming weeks now that political appointees are settling into their offices at federal agencies.

“You’ll see the pace of things pick up,” said Radzely, a former deputy secretary of labor in the Bush administration.

—Mark Schoeff Jr. 

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The U.S. House of Representatives overwhelmingly approved a measure Wednesday, February 24, that would repeal the McCarran-Ferguson Act’s limited antitrust exemption for health insurers.

The Health Insurance Industry Fair Competition Act enjoyed the support of the White House. The bill passed on a 406-19 vote.

Proponents of the House measure held that it is necessary to promote competition in the health insurance industry and thus lower costs. Opponents, which include health and property/casualty insurers, argued that it would have the opposite effect.

“We’re concerned that House members are voting to repeal the exemption when they don’t seem to understand what it does, and how it affects consumers,” Jimi Grande, senior vice president in the Washington office of the National Association of Mutual Insurance Companies, said in a statement shortly before the House vote. “While this bill addresses only health insurance, it sets a dangerous precedent for the next time a member of Congress decides they want to score points by punishing the insurance industry.”

 

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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Nonprofit business membership organization Corporate Voices for Working Families of Washington, D.C., has released its 2009 Employer Guide: Educate Your Employees About the Benefits They’ve Earned in time for tax filing in April 2010. Corporate Voices makes the guide available to companies and other organizations as a way to help low-wage employees take advantage of a host of benefits available to them. The guide provides detailed information about the earned income tax credit, child tax credit, Medicaid and other benefits.

The Employer Guide includes the following tools:

• Information on the earned income tax credit (EITC), advanced EITC, the child tax credit, Medicaid/State Children’s Health Insurance Program (SCHIP), supplemental nutrition assistance program (SNAP), low-income energy assistance program (LIHEAP) and Volunteer Income Tax Assistance (VITA) centers

• Tips on how employers can talk to employees about tax credits and federal benefits

• Step-by-step instructions on how to enroll employees in advanced EITC

• Guidelines to help employees avoid predatory tax-preparation practices

• Corporate best practices on how to best use the guide to help employees access these programs

• Calendar of important dates to remember when filing for these benefits

• Facts on the “stored value card,” often referred to as the prepaid debit card

• Paycheck stuffers—available in both English and Spanish

Download the guide and its tools here.

Workforce Management Online, February 2010 — Register Now!