IRS Allows Struggling Employers to Reduce Or Suspend Nonelective Contributions to
401(k) Plans
Under regulations proposed by the IRS, an employer undergoing a substantial business hardship can reduce or suspend 401(k) safe harbor nonelective contributions during a plan year. The rules give employers an alternative to terminating their safe harbor plans. The regulations are proposed to be effective for amendments adopted after May 18, 2009, but employers may rely on the proposed regulations for guidance in the meantime. If the final regulations are more restrictive than those proposed, the stricter provisions will not be made retroactive. |
Expanded HIPAA Requirements and HHS Guidance on Securing PHI
The push for health information technology (IT) has prompted concerns about keeping health information private, and the American Recovery and Reinvestment Act of 2009 (ARRA) expands the privacy protections under the Health Insurance Portability and Accountability Act (HIPAA). The 2009 act imposes new notification requirements for breaches of unsecured protected health information (PHI), establishes new disclosure requirements for electronic health records, and strengthens enforcement and penalties for violations. It also includes provisions aimed at encouraging greater use of health IT. Emergency Retiree Health Benefits Protection Act Reintroduced
Representative John Tierney (D-Mass.) has reintroduced the Emergency Retiree Health Benefits Protection Act (H.R. 1322), which would prevent employers from reducing or eliminating health benefits for retirees or their dependents. The bill has been around for years but has attracted more attention since it appeared in a pension bill last year. Healthy Families Act Would Mandate Paid Sick Leave
Representative Rosa DeLauro (D-Conn.) has reintroduced the Healthy Families Act (H.R. 2460), which would require employers with more than 15 employees to provide paid sick leave to employees who work more than 30 hours per week. Senator Edward Kennedy (D-Mass.) is sponsoring the legislation in the Senate (S. 1152). Senator Kennedy had considered an earlier version of the legislation a top priority at the start of the 2007-2008 legislative session, but the act stalled. Supporters hope the recent flu outbreak will bolster support for legislation that could encourage sick workers to stay home. EEOC Releases Informal Guidance on Health Risk Assessments and the ADA
The Equal Employment Opportunity Commission (EEOC) has released an opinion letter saying an employer’s health risk assessment program violates the Americans with Disabilities Act (ADA). While many employers have moved forward with health risk assessments and other mandated wellness arrangements, the EEOC’s letter is a reminder of the importance of considering ADA implications before instituting a wellness program. Legislation Calls for More Transparent Disclosures of 401(k) Fees
The legislative push for new fee disclosure requirements for defined contribution plans is gaining momentum on Capitol Hill. Key lawmakers have brought back fee disclosure bills they sponsored during the 2007-2008 legislative session. Representatives George Miller (D-Calif.) and Rob Andrews (D-N.J.) reintroduced the 401(k) Fair Disclosure for Retirement Security Act (H.R. 1984). Senators Herb Kohl (D-Wis.) and Tom Harkin (D-Iowa) reintroduced the Defined Contribution Fee Disclosure Act (S. 401). And on June 10, Representative Richard Neal (D-Mass.) introduced a modified version of the Defined Contribution Plan Fee Transparency Act (H.R. 2779). Health Care Reform Takes Shape
Congress is in a flurry of decision making and debate as it scrambles to get health care reform bills ready before the August recess. The next few months will be critical as lawmakers try to work out important and contentious issues — including individual and employer mandates, a health insurance exchange, a public plan option and subsidies to help individuals and families purchase coverage. President Obama has asked Congress to present a bill for his signature by Oct. 1 — which would be an impressive feat, given the upcoming Independence Day and August recesses. Recession Undercuts Social Security and Medicare
The recently released annual reports from the trustees on the financial state of Social Security and Medicare show the current deep recession is taking a toll on the financing of both programs. The adverse consequences will occur in the short run — as outlays rise somewhat and, more significantly, revenues from payroll taxes fall — and in the long run, as the trust funds are smaller than expected. While the unsustainability of Medicare — caused mainly by rapidly rising health care costs — has been well known for some time, the imminent likely cash flow shortfall in Social Security’s finances is a more surprising and possibly more important development. DB Plans Face Steep Increase
In Variable-Rate Insurance Premium
In 2008, the value of investments held by defined benefit (DB) pension plans dropped precipitously. Provisions of the Worker, Retiree and Employer Recovery Act (WRERA), judicious elections of valuation methods and the recent IRS announcement on the “applicable month” will ameliorate the impact of the market decline on 2009 required contributions. However, DB plan sponsors also face a steep increase in their variable-rate premium (VRP), which is paid to the Pension Benefit Guaranty Corporation (PBGC) to insure vested employee pension benefits. Going Beyond Conventional Wisdom: Designing Executive Pay to Balance
Risk and Performance
A fundamental principle of modern financial theory is the inherent trade-off between risk and reward. To be attractive, riskier projects or investments must hold out the prospect of bigger rewards. At the corporate level, this risk premium is reflected in lower share prices for stocks and higher interest rates for bonds. But risk premiums and credit spreads are linked to attitudes toward risk and returns. When investors and companies are more willing to accept higher risks in pursuit of greater rewards, risk premiums and credit spreads tend to fall and aggregate risk levels rise.
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