9 trends driving employee benefits in Q2 and beyond
As the employee benefits industry moves into the second quarter of 2017, it becomes increasingly clear that there is an atmosphere of unpredictability. One thing is certain in this field: Employers and advisers who embrace change will be well positioned for the future.
While we may not have a crystal ball, the following are 10 employee benefit insights for the road ahead.
1) President Trump and the ACA
The repeal, replacement or repair of the Affordable Care Act is expected to make significant changes for employee benefits in the future, but for now, stay the course.
Soon after his inauguration, President Trump issued an executive order to minimize the economic burden of the ACA, which followed a Congressional budget resolution that instructed committees to write repeal legislation. However, until Congress passes more comprehensive repeal or replace legislation and agency heads are in place to issue new regulations, all the provisions of the ACA, and its compliance requirements remain “in force.” Employers still need strategies to offer competitive, cost-effective benefits, designed to impact their long-term cost and recruiting/retention trends, while ensuring ACA compliance. As a result, there are no short-term changes that employers should be considering to their benefits strategy, open enrollment, or administration or reporting until more about the specific changes to the law is known. It’s business as usual … for now.
2) Millennials matter and they are burdened with debt
While costs for many consumer goods have decreased, or remained stable, costs for education, child care, and healthcare have soared. Every worker, including millennials, is paying the price. As a result, employers who understand that employee financial stress leads to reduced productivity are embracing financial wellness programs. These programs are expected to proliferate in the coming years and take the form of general financial education, tuition reimbursement programs, debt management, mortgage discounts, and retirement income projection tools, to name a few.
Employers should identify their key financial education goals and analyze their internal employee data to drive key messages that are tailored to specific employee groups.
3) Conflicts of interest do matter
President Trump has been vocal in his desire to reduce administrative burdens from plan sponsors and financial institutions. Recently, he issued a memorandum instructing the Department of Labor to review the fiduciary rule and the Dodd-Frank Act. Both were intended to provide consumer protections for participants in employer-provided retirement plans, but have met resistance from the financial industry.
Plan sponsors will now have to balance the employee expectations of transparency and lowest potential fees with an uncertain compliance landscape. Benchmarking adviser fees to ensure the services provided are necessary and the fees for those services are reasonable will assist in upholding the standard of a prudent fiduciary as required under ERISA.
4) Ease-of-everything key to successfully engaged employees
From communications to benefits offerings, employees are more likely to participate if the messaging and offering are simple. We recommend that employers review their communications to make them concise, graphic and personalized. Technology and social media tools, like personalized mobile and decision-support tools are extremely effective. On the healthcare front, as the system becomes increasingly complicated, employees will respond to those solutions that are simplified and relevant to their personal situation.
5) De-risking pension plans for positive outcomes
The magnitude of the financial impact a defined benefit pension plan can have on a company’s balance sheet necessitates that it should be managed like a separate line of business; complete with budgets, forecasts and a strategic plan. Many employers are increasingly taking steps to freeze their existing plans to mitigate the growth in liabilities to the company’s financials.
In addition, employers are also initiating a variety of strategies to reduce the volatility of annual and quarterly plan contributions, including implementing liability driven investing to match bond duration to plan liabilities, increasing their plan funding by taking corporate loans at low interest rates to fund the plan, paying out vested terminated employees and even settling future liabilities with insurance companies through annuity buy-in and buy-out programs.
As the number of pension plans shrinks nationwide, the employment of these strategies is growing in frequency as employers attempt to permanently relieve themselves of the high cost and unpredictability of these liabilities and their impact on the corporate bottom line.
6) Transgender awareness is increasingly relevant
The rules around transgender issues, though far from clear, are beginning to take shape. Given the growing number of jurisdictions that consider categorical exclusions of coverage for transgender plan participants to be impermissible sex discrimination, plan sponsors should carefully review their plan to determine whether any sex- and gender-specific exclusions are currently in place. From there, consult with counsel to determine whether current plan exclusions expose the plan to potential liability.
7) The regulators are back in session
Due to increased enforcement efforts and non-compliance penalties, compliance should remain a top priority for employers and plan sponsors. Proposed regulations, effective for the 2019 plan year, would bring about significant changes to Form 5500 filings. Revisions would eliminate the filing exemption for those plans with fewer than 100 participants and add a new schedule J for health plans, which requires much more comprehensive plan information.
The new requirements are designed to aid the DOL and IRS in assessing whether employer-sponsored health plans are compliant, and could be triggers for audits and penalties. Of course, as is the case with many existing proposed regulations, the future under the new administration is uncertain, so employers should stay abreast of any developments.
8) Plan audits really are happening
The DOL and IRS are stepping up their retirement plan examination and enforcement programs. The DOL closed more than 3,600 civil and 275 criminal investigations in 2015 alone. While fees and investments are the primary focus of most class action lawsuits, there are a host of other things the DOL is looking into in their audits, most of which are administrative and operational in nature. Problems related to plan documents, compensation, contribution remittance, participant disclosure delivery compliance, and nondiscrimination testing are just some of the many areas of enforcement regulators are focusing on.
Employers need to be diligent and have implemented a sound fiduciary best practices program that encompasses the plan investment, plan management and plan administrative functions to ensure that they are meeting all legal and regulatory requirements.
Only one participant phone call to the IRS or DOL is needed to trigger an audit. If you haven’t established and implemented the necessary best practices, such an audit can end up costing tens or even hundreds of thousands of dollars in unanticipated compliances expenses, even for a small company.
9) HIPAA is still relevant — and it still takes effort to comply
HIPAA should continue to be on employer and advisers’ radar as phase two audit s— focused on plan sponsors (employers) and business associates — are wrapping up. Moving forward, employers should expect random audits that could be triggered by a number of sources, including participant complaints, Form 5500 filing reviews, inter-agency referrals, and HIPAA breaches. With short response times to audit questionnaires, employers should prepare in advance by conducting HIPAA self-assessments regularly.