City of Omaha Plan to Reduce Employee Benefits
City of Omaha Plan to Reduce Employee Benefits document sample
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Fall 2009 EMPLOYEE BENEFITS NEWS KUTAK ROCK EMPLOYEE BENEFITS GROUP CONTACTS 10 Ways to Cut Benefit Costs Without Cutting Benefits John E. Schembari In the current economic climate, many companies are looking for ways to cut John.Schembari@KutakRock.com costs. For some companies, cutting costs means cutting benefits. Fortunately, there are ways to reduce benefit costs without reducing the benefits themselves. Peter C. Langdon Peter.Langdon@KutakRock.com 1. Negotiate More Aggressively With Vendors. Success rates will increase if employers are prepared with data on differences among plans and vendors. Janis J. Winterhof Janis.Winterhof@KutakRock.com Employers are taking a firmer stance in negotiations, including threatening to eliminate plans if providers refuse to reduce costs. Employers may be especially Juliana Reno successful at reducing administrative, renewal and employee service costs through Juliana.Reno@KutakRock.com such negotiations. Michelle Ueding 2. Put Plans Out To Bid. It is a buyer’s market, and companies can drastically Michelle.Ueding@KutakRock.com reduce overall benefits costs by forcing providers to compete for business. Plans that are put out to bid are generally 16% to 18% less expensive than those that Kathryn M. Magli Kathryn.Magli@KutakRock.com are renewed, and may also enjoy improved benefits. Companies should consider using an outside consultant or advisor when putting a plan out to bid. Although William C. McCartney insurance premiums generally do not vary by broker, another advisor may provide William.McCartney@KutakRock.com new ideas and greater market knowledge. Margaret A. Olsen 3. Improve Employee Health and Wellness. Wellness programs are not new, Margaret.Olsen@KutakRock.com but they are growing in popularity. In a recent study, over one-third (35%) of employers said that they plan to increase their wellness programs in an effort to Autumn Long Autumn.Long@KutakRock.com reduce benefit costs. Almost two-thirds (65%) of companies are making a significant investment in the health and productivity of their employees through wellness Kutak Rock LLP—Omaha programs. Approximately 80% of U.S. employers use wellness programs that target The Omaha Building 1650 Farnam Street specific health conditions, particularly diabetes, cardiovascular disease, asthma and Omaha, NE 68102 depression. Educating employees on the benefits of quitting smoking and losing (402) 346-6000 weight are also key to reducing health care costs. Other Kutak Rock Offices 4. Perform a Dependent Eligibility Audit. Dependent eligibility audits Atlanta determine whether the individuals enrolled as “dependents” in the company’s Chicago benefit plans are actual eligible dependents under the terms of those plans. These Denver Des Moines audits are an increasingly popular way to reap significant immediate and long-term Fayetteville savings. Almost half of the respondents in a recent study indicated that they are Irvine Kansas City auditing or planning to audit dependent eligibility. Little Rock Continued on Page 2 Los Angeles Oklahoma City Philadelphia Richmond Also In This Issue Scottsdale Washington, D.C. Wichita Investment Committees and Best Practices........................................................3 www.KutakRock.com Determination Letter Deadlines Change ....................... ....................................4 HIPAA Now Applies Directly to “Business Associates” .................................... 5 Increasing Regulation of Executive Compensation Inescapeable ..................6 Noteworthy Items .......................................................................................................7 In the Supreme Court ................................................................................................8 10 Ways to Cut Benefit Costs Without Cutting Benefits, cont’d. 5. Increase Efficiency of Wellness consider visiting a clinic or consulting save money by switching to a plan Programs. Wellness programs can with their doctor before visiting a with a higher deductible and a lower reduce overall benefits costs, but only more expensive emergency room in premium. The company takes some if programs are run efficiently. There nonemergency situations. of the savings and returns it to the are several methods for improving 7. Provide Alternatives for employees in an HRA. The employees efficiency in wellness programs. First, Employees. Three-fourths of are pleased they have an account they maximize employee participation. companies provide multiple can draw on for the deductible, and Second, establish a wellness health plans to employees, usually the company still has a net reduction committee to gauge employee through the same carrier. High/low in costs. interest and needs. Third, take programs can stabilize insurance 10. Use an Outside Pharmacy advantage of wellness offerings that costs and provide employees with Vendor. Some insurers drive em- are already part of the health plan, such much-appreciated alternatives. ployees to choose drugs in their as health risk assessments, program formularies so that the insurers can discounts and screenings. Finally, 8. Extend a Plan’s Waiting Period. Although most employee turnover receive rebates from pharmaceutical improve employee communication manufacturers. Yet the insurers and education. Service providers occurs during the first six months of employment, companies generally may not share those rebates with often supply educational materials at employers. Employers can separate no cost to the employer and may offer allow employees to enroll in benefits after only one, two or three months. their prescription drug benefit from Web-based information and tracking their major medical plan. By using a programs. Extending the waiting period decreases the risk of a short-term third-party vendor, such as a pharmacy 6. Adjust Copayments. Adjusting employee electing COBRA coverage benefit manager, companies may be copayments to reflect the cost of and, as a result, may lower premiums. able to obtain the pharmacy rebates care encourages employees to for themselves. make financially sound health care 9. Consider a Health Reim- bursement Arrangement. Under a With a little creativity, any employer decisions. Some companies adjust can shave costs from its benefits copayments to make it more attractive Health Reimbursement Arrangement (“HRA”), an employer funds an programs without reducing the for employees to visit “in-network” benefits that help attract and retain providers that bill at more competitive account that can be directed toward employees’ out-of-pocket costs— top employees. rates. Other companies have raised deductibles, copays and coinsurance. By John E. Schembari copayments on emergency room visits to encourage employees to For example, a company decides to Employee Benefits Group Employee Benefits Group Welcomes New Attorney Michelle Ueding practice on qualified plans, deferred on administration of Health Savings joined Kutak Rock compensation plans and ERISA issues Account and Individual Retirement LLP in April of 2009. relating to these types of plans. Her Account programs, reviewed transac- Ms. Ueding is an experience includes advising clients tion documents and closely held stock Omaha native who on plan design, fiduciary duties, valuations for trustees of Employee attended Creigh- disclosure requirements, administra- Stock Ownership Plans, advised ton University and tive procedures and plan corrections. clients concerning ESOP design and graduated cum Prior to entering private practice, Ms. education, assisted clients with the laude from Creigh- Ueding was a manager at a regionally design and implementation of execu- Ms. Ueding ton Law School in based retirement plan service provid- tive benefit plans, and prepared plan 1995. Ms. Ueding concentrates her er. In this capacity, she also consulted service agreements and disclosures. 2 www.KutakRock.com Deferred Compensation Investment Committees and Best Practices Over the past 18 months, The following practices will help To develop an appropriate investment investments have been volatile, to put investment committee members strategy or provide appropriate it mildly. This volatility has heightened fulfill their fiduciary duties and limit investment options, the committee awareness of the fiduciary obligations their potential liability: must know the participants’ needs borne by those who control employee The committee should exercise and understand their demographics. benefit plan investments. In most procedural prudence. Regular, Using a third-party investment cases, investment committees decide agenda-driven meetings should be consultant to develop and implement either the investments themselves or held at least quarterly. Meetings the strategy is highly recommended. the investment options available to should be well documented by the The utmost care must be exercised in the participants. These investment committee secretary. The committee employing a consultant. committees are fiduciaries. A breach should formulate clear, written The committee should be of fiduciary duty can result in dire procedures and adopt a charter for educated about expenses. consequences, including fines and the conduct of its business. Members must develop a thorough personal liability. understanding of the fees related to Every committee member should Fiduciaries have the duty to act be engaged. Members have a duty to plan administration and determine solely in the interest of participants attend meetings and review relevant whether other amounts charged and beneficiaries. In discharging documents prior to each meeting. to a plan are appropriate. Plan this duty, fiduciaries are held to a All members should be educated on investment expenses should be standard of one who is familiar with their fiduciary duties, the committee’s regularly reviewed and benchmarked benefit plan investing. Under this procedures and the plan’s service to comparable investments. standard, fiduciaries are judged on contracts. Participant-directed plans can the prudence of their actions rather shift responsibility for specific than the outcome. Fiduciaries do The committee should adopt a focused, disciplined investment investment decisions. To limit not have a legal duty to achieve the fiduciary exposure, many 401(k) highest rate of return on their plan’s strategy. An investment policy statement should govern the plans allow plan participants to direct investments, but they must exercise their own investments. Significantly, appropriate care when making committee’s selection, monitoring and replacement of specific investments. however, participant-directed invest- investment decisions. ments do not shift fiduciary liability unless the plan complies with the specific requirements of ERISA Section 404(c). Note that even if the ab ilit y plan complies with ERISA Section l Li ntia 404(c), the investment committee te retains fiduciary responsibility for Po choosing the investment options. Inv tme es The committee must be bonded nt Va lue and should consider fiduciary Prudence of Fiduciary Actions liability insurance. A fidelity bond must be in place for individuals who handle plan assets. A fidelity bond protects the plan against loss resulting from fraudulent or dishonest acts of those covered by the bond. In addition, a fiduciary liability insurance policy may be obtained. These liability policies are not required but are highly recommended. By Peter C. Langdon 3 Governmental Plans Determination Letter Deadlines Change Private employers generally amend correction programs offered by the their retirement plans by adopting a IRS, including the ability to self-correct resolution at a board meeting. For operational errors without reporting governmental employers, however, the errors to the IRS. the amendment process can be much As we have reported in previous more complicated. For example, a newsletters, plans generally may governmental employer may need apply for a determination letter only to comply with open meeting laws. during the appropriate “cycle.” The In many cases, the governmental cycle system was adopted by the employer will need to amend the IRS several years ago. There are five plan by adopting new statutes or cycles—A through E. Single employer ordinances through the legislative nongovernmental plans fall into a process. In recognition of the specific cycle based on the last digit difficulties faced by governmental of the employer’s tax identification plans, the IRS has extended certain number. In contrast, the IRS originally deadlines relating to determination announced that governmental plans letters. wanting determination letters had to A determination letter is a apply during Cycle C, which ran from document, issued by the IRS to a February 1, 2008 through January 31, specific retirement plan, stating that 2009. the form of the plan complies with In November 2008 the IRS In November 2008 the IRS announced current law. Plans are not required announced that governmental plans that governmental plans could also seek to apply for or obtain determination could also seek determination letters determination letters during Cycle E, letters, although most do, for various during Cycle E, which runs from which runs from February 1, 2010 reasons. February 1, 2010 through January through January 31, 2011. Among other things, favorable 31, 2011. This was welcome news determination letters can protect for all government entities that were Action Items a plan during an audit. If the IRS unable to amend their retirement • Governmental plan sponsors who audits a plan and determines that plans before the end of Cycle C. In were unable to file during Cycle C the plan document does not comply such cases, we strongly recommend should submit determination letter with the law, and if the plan does not governmental entities submit their applications during Cycle E. have a determination letter, the IRS determination letter applications • Governmental plan sponsors who may disqualify the plan retroactively. during Cycle E. filed during Cycle C should consider Retroactive disqualification affects In August 2009 the IRS issued whether it may be beneficial to the plan’s favorable tax treatment, Revenue Procedure 2009-36, which withdraw their determination letter meaning that contributions to the offers two key points of additional applications and resubmit during plan will be treated as taxable— flexibility for governmental plans. Cycle E. rather than nontaxable—income. First, if a governmental plan applied for In contrast, if the plan does have a • Governmental plan sponsors who a determination letter during Cycle C, receive conditional determination determination letter and has been the application can be withdrawn and operated in compliance with the letters (letters that are contingent resubmitted during Cycle E. Second, upon the sponsor making certain letter, the plan is better protected where the IRS issues a favorable against disqualification through the amendments) should immediately determination letter but the letter is determine the time period during date of the letter. contingent upon the plan sponsor which the amendment must be made. Favorable determination letters adopting certain amendments, the provide other benefits as well. government entity has more time By Kathryn M. Magli For example, they allow plans to than a private employer to adopt the participate in certain voluntary conforming, retroactive amendments. 4 www.KutakRock.com Health Plans HIPAA Now Applies Directly to “Business Associates” On February 17, 2009, President Breach. Effective September 23, disclosing PHI. There are exceptions Obama signed the stimulus bill, 2009: If there is a breach of “unse- to this rule, which include, but are which included a section known as cured” PHI held by the Business not limited to: disclosures where the Health Information Technology Associate, the Business Associate the individual whose PHI is being for Economic and Clinical Health must notify the Covered Entity of the sold provides a valid authorization; Act (“HITECH”). HITECH amended breach. (PHI is “unsecured” unless disclosures for public health activities; the Health Insurance Portability and it is encrypted or destroyed so as disclosures for research purposes; Accountability Act of 1996 (“HIPAA”) to render it unusable, unreadable disclosures for the treatment of by strengthening federal privacy and or indecipherable to unauthorized the individual; and disclosures in security rules governing employer- individuals.) This notification must conjunction with mergers and sponsored health plans. occur “without unreasonable delay” acquisitions of Covered Entities. Under HIPAA, health plans and and in no event more than 60 days Enforcement. HITECH requires the other “Covered Entities” are required after the breach is discovered. Department of Health and Human to protect individually identifiable Policies and Procedures. Effective Services to conduct audits of Covered health information, such as February 17, 2010: Business Associates Entities and Business Associates. enrollment and claims data. Covered will be directly subject to HIPAA’s In addition, the Department must Entities are permitted to disclose this privacy and security provisions. investigate complaints of HIPAA protected health information (“PHI”) Business Associates must adopt violations. to their vendors and contractors, written policies and procedures that Business Associates should who HIPAA refers to as “Business govern the use and disclosure of PHI. immediately begin drafting policies Associates.” Covered Entities and In particular, Business Associates must and procedures for identifying, Business Associates were required establish administrative, technical investigating and reporting breaches to enter into a written agreement, and physical safeguards to prevent of unsecured PHI. In addition, in which the Business Associate the improper use or disclosure of Business Associates should begin promised to protect the PHI. PHI. A Business Associate’s failure to preparing more far-reaching policies Privacy advocates became comply with those provisions may and procedures that satisfy the privacy frustrated with this arrangement. In result in civil monetary penalties or, in and security rules. Business Associate particular, they found it intolerable an extreme case, criminal sanctions. agreements should be amended to that HIPAA could be enforced against Selling PHI. Effective February 17, reflect these new obligations. Covered Entities, but not against 2010: Business Associates may not sell By Juliana Reno Business Associates. HITECH solved PHI except in limited circumstances. and William C. McCartney this frustration and affected Business Business Associates generally may not Associates in other ways as well. receive remuneration in exchange for Employee Benefits Group Special Thanks to Our Summer Associates We would like to thank our summer associates for their hard work this summer. Their efforts allowed us to provide the level of excellent service that our clients have come to expect. In particular we want to acknowledge Amanda Bahena Arteaga (University of Iowa), Daniel Bruce (University of Nebraska) and David DeWald (University of Nebraska) for assisting with this edition of Employee Benefits News. Best of luck to each of you in the upcoming year. 5 Executive Compensation Increasing Regulation of Executive Compensation Inescapeable As a consequence of the financial e control in contro packages to ensure crisis and the media attention on tion they facilitate long-term that t executive pay, public outragerage growth grow consistent with the over “excessive” executive ve companies’ overall strategic co compensation has grown objectives. o over the last year. Say on Pay. Even Although the Obama before the economic Administration has crisis, shareholders spearheaded efforts were proposing more to limit compensation input on executive paid to executives at compensation through financial and automo- advisory nonbinding tive institutions receiving votes. The House recently v federal government funding, ng, passed pas the Corporate public and congressional angernger and Financial Institution over executive compensation nsation Compensation Fairness Act of Compe persists. This anger is not limited to mited 2009, which would require “say wh bailout recipients but has extended on pay” votes. Mandatory say on vo to publicly traded companies and panies pay is also proposed in four other potentially beyond. bills pending in Congress. As this pendin Legislation regulating executive legislation comes to fruition, all compensation for publicly traded icly companies should evaluate the companies has been proposed in roposed compensation information executive co Congress in various forms, and a wave they provprovide to shareholders, of change in corporate governance especially as it relates to elements a is imminent. New best practices st of compensation currently under compen are already evolving. Any company y scrutiny. scrutiny that pays executive compensation Executive Compensation Takeaways. should examine its compensation threaten the value of the company. An executive compensation revolution policies to determine whether it The Shareholder Bill of Rights Act of is imminent. All publicly traded desires to realign itself with recent 2009 (pending in Congress) would companies will feel the repercussions, compensation trends and legislation. require publicly traded companies and the changes could establish Below we highlight some of the key to establish an independent Board best practices for private companies. changes required or proposed. of Directors committee to direct risk As new practices emerge, boards Compensation That Encourages management practices. should embrace new compensation Unnecessary and Excessive Golden Parachutes—Severance policies that foster the alignment of Risks. The Administration’s broad Packages and Change in Control executive and shareholder interests, corporate compensation principles Payments. Companies receiving with an emphasis on policies that may guide companies seeking to governmental funding are generally encourage long-term value creation. address shareholder concerns over prohibited from making any payment Shareholders eventually will have excessive executive compensation. for an executive’s departure from more input on the companies that In sum, these principles seek to the company for any reason, except they own, and boards likely will have align shareholder interests with for services performed or benefits to act quickly to implement more executive interests to facilitate long- ac-crued and for a change in progressive compensation policies. term growth while discouraging control. In light of the challenges By Janis J. Winterhof compensation structures that to traditional golden parachute would encourage executives to take arrangements, companies should unnecessary and excessive risks that examine their severance and change 6 www.KutakRock.com Employee Benefits Updates Upcoming Deadlines Mental Health Parity. The Mental that their practices match their plan Health Parity and Addiction Equity documentation. Funding Relief. The temporary Act of 2008 prohibits group health New Initiatives. President Obama funding relief provided to defined plans from imposing more restrictive used a recent radio address to benefit plans under the Worker, financial requirements and treatment announce new initiatives that were Retiree, and Employer Recovery Act limitations on mental health or designed to improve Americans’ of 2008 (“WRERA”) is effective for plan substance use disorder benefits than retirement savings opportunities. The years beginning on or after October 1, those associated with medical and new initiatives were published as IRS 2008 and before October 1, 2009. In surgical benefits. These provisions are guidance. The guidance: general, the Pension Protection Act effective for plan years beginning on (the “PPA”) imposes limitations on or after October 3, 2009. • Updates model notices that plan benefits provided under a pension administrators should use when plan unless the plan’s funded status Michelle’s Law. Michelle’s Law a participant receives an eligible meets certain thresholds. For requires group health plans to rollover distribution. example, a plan determined to be less continue coverage of dependent than 60% funded must freeze benefits college students who would • Makes it easier for an employer otherwise lose coverage due to a to add an Automatic Contribution and discontinue certain forms of medically necessary leave of absence Arrangement to a qualified distributions (e.g., accelerated for one year following the first day retirement plan or SIMPLE IRA. distributions that pay out faster of the medically necessary leave of Under an Automatic Contribution than a single life annuity). Following absence or until the date on which Arrangement, a certain percentage the sharp decline in pension asset such coverage would otherwise of each employee’s income is values in 2008, many benefit plans terminate under the terms of the plan. automatically withheld from pay have faced the prospect of triggering These provisions are effective for plan and contributed to the employer’s benefit restrictions. WRERA allows years beginning on or after October 9, retirement plan, though the employee plan sponsors to use the prior plan 2009. must be allowed to opt out of the year’s funding level to avoid freezing arrangement. benefit accruals. Suspension of Minimum Required Extended Deadline for Distributions. WRERA suspends • Clarifies certain tax issues for required minimum distributions employers who allow employees Multiemployer Plans. The IRS extended the deadline for (“RMDs”) from defined contribution to contribute unused sick leave or multiemployer plans to elect relief plans and IRAs for 2009. Distributions vacation time to the employer’s under WRERA. The PPA requires a in 2009 that otherwise would be RMDs retirement plan. plan’s actuary to annually certify may be eligible rollover distributions By Margaret A. Olsen the plan’s funding status. Sponsors but are not subject to the 20% of plans that are in endangered, mandatory tax withholding or special seriously endangered, or critical tax notice requirements. RMDs for status must notify interested parties 2008 are still required, which include those to be made K S of the plan’s funding status and adopt Y D either a funding improvement plan by April 1, 2009. Although or rehabilitation plan. WRERA allows WRERA permits plan V F O affected plans to treat the plan’s amendments reflecting I B X funding status for the prior plan year the required minimum ERISA T L R as its status for the applicable plan distribution waiver to year (the first plan year beginning be adopted until the last N during the period of October 1, 2008 day of the first plan year Z G U beginning on or after M C P J H E through September 30, 2009). Plan sponsors must elect such relief by the January 1, 2011 (January Q W later of June 30, 2009 or the date that 1, 2012, in the case of is 30 days after the due date of the governmental plans), plan annual certification of endangered or sponsors may wish to amend critical status for the election year. their plans sooner to ensure 7 In the Supreme Court AT&T Corp. v. Hulteen, 129 S. May 2009, the U.S. Supreme Court their divorce settlement. During their Ct. 1962 (2009). Pursuant to the held that employers need not marriage, the husband designated Pregnancy Discrimination Act (the adjust current pension benefits to his spouse as the sole beneficiary “PDA”), it is discriminatory to treat account for a denial of work credit of an ERISA savings and investment pregnancy-related conditions for maternity leave that occurred plan (the “SIP”). When they divorced, less favorably than other medical before the passage of the PDA. The the wife agreed to the divestment of conditions. After the PDA was court found that an employer does her interest in the proceeds of the enacted, AT&T adopted its Anticipated not necessarily violate the PDA when SIP. The husband retired without Disability Plan (the “Plan”), which it pays pension benefits calculated in changing his original beneficiary provided the same service credit for part under a rule, applied only pre- designation. When he died, the plan pregnancy leave as leave taken for PDA, that gives less retirement credit administrator paid the SIP benefits other temporary disabilities. AT&T did for pregnancy than for medical leave to the former spouse. The Court held not make any retroactive adjustments generally. that the administrator was correct to to the service credit calculations of Kennedy v. Plan Administrator adhere to the beneficiary designation women who had been subject to for DuPont, 129 S. Ct. 865 (2009). that was filed in accordance with the pre-PDA personnel policies, which In January 2009 the U.S. Supreme terms of the SIP. This case affirms the provided limited service credit for Court ruled that a DuPont plan primacy of ERISA plan documents. pregnancy-related leave. Employees administrator was correct to pay a A plan administrator must honor sued to recover the additional deceased worker’s death benefits to the terms of the plan, even where a pension benefits they would have his former spouse, even though she common law waiver is valid. received if the new Plan was applied gave up her right to the benefits in retroactively. In a 7-2 decision in Employee Benefits Group Kutak Rock LLP’s Employee Benefits Group exists to serve clients with respect to legal matters concerning employee benefits and executive compensation, whether regarding corporate, litigation, tax or government relations. The Group’s collective legal expertise provides clients with thorough representation in virtually every aspect of employee benefits matters. Our employee benefits and executive compensation clients range from small, closely held organizations to international, publicly traded corporations to city and state governments. For more information, visit us online at www.KutakRock.com. John E. Schembari Peter C. Langdon Janis J. Winterhof Juliana Reno John.Schembari@ Peter.Langdon@ Janis.Winterhof@ Juliana.Reno@ KutakRock.com KutakRock.com KutakRock.com KutakRock.com Michelle Ueding Kathryn M. Magli William C. McCartney Margaret A. Olsen Autumn Long Michelle.Ueding@ Kathryn.Magli@ William.McCartney@ Margaret.Olsen@ Autumn.Long@ KutakRock.com KutakRock.com KutakRock.com KutakRock.com KutakRock.com Employee Benefits News is a publication of Kutak Rock LLP and is intended to notify our clients and friends of current events and to provide general information about employee benefits issues. It is not intended, nor should it be used, as legal advice, and it does not create an attorney-client relationship. This may be considered advertising in some states. The determination of the need for legal services and the choice of a lawyer are extremely important decisions and should not be based solely upon advertisements or self-proclaimed expertise. To ensure compliance with requirements imposed by the IRS, we inform you that any federal tax advice contained in this communication should not be used or referred to in promoting, marketing or recommending of any entity, investment plan or arrangement, and such advice is not intended to be written or used, and cannot be used, by a taxpayer for the purpose of avoiding penalties under the Internal Revenue Code.