Using alternative strategies to circumvent compliance requirements
Advisers should partner with members of HR to employ the best practices that deliver strong employee benefits compliance and a strong employee benefits strategy, said Sheldon Blumling, partner at Fisher & Phillips, LLP, who recently spoke at the Society of Human Resource Managers annual conference and exposition in New Orleans. This will help employers to attract and retain the most talented workers.
With so many regulatory obligations and the option for employees to enroll in private exchanges, Blumling said it would be easier for employers to strictly offer a cash bonus to their employees rather than offer benefits such as healthcare and 401(k) investment. However, not offering benefits would cause recruitment and retention to suffer.
“These days, you can go get your health insurance on the exchange, you can get an IRA or some kind of life insurance product for retirement planning. Let’s just pay people cash and eliminate all the complexity,” Blumling said. “But we don’t do that because that is not going to help us attract and retain talent, unless everybody down the street that we are competing with goes the same direction.”
Regardless of regulations requiring employers to offer health benefits to full-time employees, Blumling said no matter how many professionals employers get involved with their benefits plan — whether it’s a full HR staff, an adviser, consultant or broker — being a 100% compliant with all regulations will never be achieved.
“Compliance is a necessary evil,” Blumling said. “When I get a call from a client, I know they are not calling because they want to chit-chat. They have a problem and they need my help to deal with it.”
Blumling added that advisers are taking the role of risk management specialists because the level of regulation and documentation of benefits has become so complex that it is easy for employers to miss a compliance deadline or send a mandatory notice to employees. If a lapse should occur, this could cause them financial or legal trouble in the future.
“If you have a good understanding of compliance obligation, it’s going to help you pick the right strategy to get the options in front of whoever needs to consider them and make sure that they are considering all the different choices,” Blumling said. “You shouldn’t necessarily want to be a strategy person or a compliance person, but if you put the two together, that’s where you’re going to have that competitive edge.”
When handling retirement plans such as 401(k), Blumling said the best strategy advisers can offer their clients is to maximize the savings opportunities for all employees, not just for those in c-suite positions.
“Most advisers have dealt with this issue that the higher level employees are thinking about retirement and are the ones who put a little more into retirement,” Blumling said. “What you are really trying to do is offer that 401(k) plan as a great vehicle in order for them to invest more.”
The major road block that many employers face is nondiscrimination tests, which the Employee Retirement Income Security Act requires each year to prove 401(k) plans do not discriminate in favor of employees with higher income. “Failing these tests limit employers’ saving opportunities,” he said.
Some alternatives advisers can offer to ensure their client do not fail these nondiscrimination tests is to boost the participation of non-high compensated employees through increased communication or a match contribution techniques.
When handling group health plans, Blumling said the biggest issue is minimizing plan cost depending on the client’s demographic, and regardless of what the future holds for the ACA there are still going to be challenges. “Either at the federal or state level, there will continue to be problems that employers face,” Blumling said.
Due to the ACA’s employer mandate, for example, compliance generally causes increase in cost, which leads to responses from employers such as reducing the full-time employee population, calculating costs of additional coverage obligations. This leads to more eligible employees and higher employer subsidies that can urge employers to reduce plan benefits to offset additional coverage obligations.
“Employers are going to their higher paid people and saying, “sorry you have to pay more for your health insurance than you used to because we have to pay more for a lot of other people,”” Blumling said.
Alternatives for managing the employer mandate include cafeteria plan techniques, a reimbursement plan governed by the IRS Section 125 to allow employee to contribute a certain amount of their gross income to a designated account before taxes are calculated.
Other alternatives include managing exposure to the 4980H(b) $3,000 penalty — by identifying affordability estimates and the likelihood of public exchange enrollment — and offering, “skinny plans” to employees who do not require all the coverage provided by a standard health plan.