As employers start to conduct cost-benefit analysis on providing health insurance under the health law, they should also study some proposals by the National Commission on Fiscal Responsibility and Reform.
"The current national debt is sitting at $14.2 trillion. To put things in perspective, prior to the start of the 2008 recession, it was at $11 trillion, so we have added $3 trillion in just 24 months," said Michael P. Aitkin, director of governmental affairs at the Society for Human Resource Management, during the organization's employment law and legislative conference in March. According to the Congressional Budget Office, the federal deficit for fiscal year 2011 and 2012 will average about $600 billion a year, he added.
"Why I am talking about the federal deficit and long-term national debt? We are supposed to be talking about HR policy issues. But we need to keep in mind that public-policy discussions about the deficit could affect the favorable tax- status of employer-provided benefit plans," said Aitken. "Although we have seen the biggest growth in homeownership in the last 30 years, tax deductions from mortgage interest only rank third as a source of lost tax revenue for the U.S. Treasury Department."
The largest lost tax revenues for the federal government are the tax exclusion of employers' contributions for health care, health insurance programs, and long-term care insurance premiums, and the net exclusion of pension contributions and earnings.
According to the Joint Committee of Taxation, the 2010 to 2014 cumulative budgetary effect on lost tax revenue from the exclusion of employers' contributions for health care, health insurance programs and long-term insurance premiums is nearly $700 billion, while for the loss stemming from the net exclusion of pension contribution and earnings is about $600 billion, explained Aitken at the three-day event, which focused on employment laws and legislation affecting how corporate America manages its workforce.
Last year, President Obama created the bipartisan National Commission on Fiscal Responsibility and Reform to help the nation rein in its debt. At the end of 2010, NCFRR issued a report outlining policies to improve the nation's fiscal health. The task force hopes the report recommendations will balance the budget by 2015.
"It's worth reading because it proposes to change every facet of our tax and spending policies, including the tax treatment of employer-provided health insurance and defined contribution plans," said Aitken.
For example, the task force recommends amending tax exclusions and deductions on employer-provided health insurance, which would result in employees being taxed on health care services and employers missing out on some tax breaks for the plans that they currently provide.
Under the Patient Protection and Affordable Care Act, employers will face a 40% excise tax in 2018 on coverage exceeding $10,200 for individuals and $27,500 for families, to be indexed annually.
The proposal by NCFRR goes one step further by eliminating the tax exemption for the 75th percentile of premium levels in 2014, which will be frozen through 2018. The tax deductions and exclusions will be phased out by 2038.
On the retirement side, NCFRR proposed capping contributions that can be made to defined contribution plans to $20,000 annually or 20% of income. Currently, the cap is $49,000 annually and 100% of income. The proposal would limit elective deferrals to 401(k) plans to $16,500, which would only allow about $3,500 in which employers could make matching contributions and other type of contributions.
"We come here as citizens and HR professionals to enhance your experience with first-hand knowledge on how you can help shape the laws of our country to ensure that laws promote a fair and flexible workplace," Aitken said.
Benefit reductions continue
Despite a nascent economic recovery, employee benefits reductions continue, according to a new poll by the Society for Human Resource Management.
In the last six months, 20% of employers reported that they reduced employee benefits, the highest level since the fall of 2008, the year SHRM started tracking the recession's impact on employers.
Employers continue to scale back on health care coverage for employees (91%) and spouses and dependents (89%), paid relocation programs (55%) and the amount of leave an employee can accrue (54%).
If the economic upswing doesn't pick up some speed, surveyed participants reported that their organizations will consider:
* Allowing attrition (26% "very likely," 39% "somewhat likely").
* Freezing employee wage increases (25% "very likely," 24% "somewhat likely").
* Making budget cuts across the entire organization (21% "very likely," 36% "somewhat likely").
* Cutting employee bonuses (21% "very likely," 26% "somewhat likely").
* Implementing hiring freezes (16% "very likely," 30% "somewhat likely").
On the brighter side, the number of employers that made budget cuts within their organizations dropped to 60% in 2010 from 73% in 2009.
The survey results, outlined in the report "Financial Challenges to the U.S. and Global Economy and Their Impact on Organizations - Fall 2010 Update," show that more than one-third of surveyed employers froze employee wages (39%), cut employee bonuses (38%) and implemented layoffs (36%), down from their highest levels in the fall of 2009.
