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Benefits Legislation Active as 2007 Session Hits Midpoint
As Congress headed into the July 4 recess, compensation and benefits were high on the legislative agenda. The focus is expected to last through the year, with health care likely to play a role in the presidential elections as well. After the prolonged debate preceding enactment of the Pension Protection Act of 2006 (PPA), retirement issues slipped down the agenda a few notches. However, Congress enacted some technical corrections to the PPA and is discussing others, as well as retirement savings, 401(k) fees, hedge fund disclosures and other retirement matters. |
A Comparison of Limits in Tax-Qualified Retirement Plans With Those in Social Security: 1987 to 2007
The legislated limits on covered compensation, benefits and contributions to tax-qualified retirement plans have been changed many times. Although the limits are indexed to consumer prices, these legislative changes have kept absolute dollar limits flat or only modestly higher from 1987 to today. By contrast, benefits under Social Security, which are indexed to faster-rising average wages, have increased significantly over the period. Court Upholds EEOC’s Regulation Allowing Plans to Coordinate Retiree Health Benefits With Medicare
The U.S. Court of Appeals for the Third Circuit recently upheld the Equal Employment Opportunity Commission’s (EEOC’s) proposed regulation to allow employers to coordinate retiree health benefits with Medicare benefits. Finding that the regulation was “reasonable” and “necessary and proper in the public interest,” the appeals court upheld a lower court’s decision to lift an injunction, permitting the regulation to stand. The EEOC is now free to finalize its rule, thereby giving employers license to coordinate retiree medical benefits with Medicare. IRS Releases Guidance on Partial Plan Terminations
In Revenue Ruling 2007-43, the IRS clarifies that a participant turnover rate of at least 20 percent creates a presumption of a partial plan termination, although the ultimate determination still rests with the specific facts and circumstances. While the ruling does not establish any new principles for determining when a partial termination has occurred, it consolidates existing guidance and important case law. A Reasonable Approach to Severance and Change-in-Control Payments
Watson Wyatt’s executive compensation consultants are advising clients to rethink their severance and change-in-control provisions and, when warranted, to bring them into closer alignment with their purpose and shareholder interests. Massachusetts Universal Health Care Goes Live
In a first for the nation, all residents of Massachusetts were required to obtain health insurance by July 1, 2007, under a law passed last year. By May 2007, more than 100,000 residents who had been uninsured had acquired coverage. To make universal coverage possible, the law makes new demands on employers in Massachusetts, which must make a “fair and reasonable” contribution to the cost of their employees’ health insurance or else pay a fair-share contribution to the state. Supreme Court Rules Merger Is No Way
To Terminate a Plan
In Beck v. PACE International, the U.S. Supreme Court ruled that a plan merger is not a method of plan termination, so in choosing whether to merge plans or to undergo a standard plan termination, the sponsor is not making a fiduciary decision. The ruling confirms that choices about a plan’s future — such as changing the plan design, freezing or terminating the plan and recovering excess assets — are not fiduciary decisions subject to ERISA.
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