Category: Employee Benefits

The federal government unveiled details this week about how people age 26 can get covered by their parents’ health insurance policies.

Expanding health coverage to young adults is welcome for an age group that accounts for the majority of uninsured Americans. Roughly 30% of young adults up to age 26 have no health insurance at all. That’s three times the rate of uninsured children, according to the Department of Health and Human Services.

HHS estimates that about 1.2 million young adults will elect to be on their parent’s health plan in 2011.

Here’s is a brief synopsis of what you need to know about the new regulations.

Who’s covered: The law takes effect for insurance plans that already cover dependents, starting on or after Sept. 23, 2010.

Those plans will cover policyholders’ children until age 26 — even if those adult children no longer attend college, don’t live with their parents and aren’t dependents on a parent’s tax return.

Under-26 children who were previously dropped from dependent coverage will also be able to re-enroll as long as they don’t have access to an employer-sponsored plan.

If an adult child has access to another employer-sponsored health plan, insurers can generally refuse coverage, but only until 2014.

Also, the re-enrollment option only applies to plans that already offer dependent coverage. If a company has such a plan, it must inform employees their children, who may have aged out of the plan, will be eligible again starting Jan. 1, 2011.

The policy applies to married and unmarried children, but does not extend to their spouses or children.

How much it will cost: Insurers must treat all dependents the same, regardless of age. That means that companies cannot raise costs or limit coverage for the under-26 group.

$3,500 in 2012; and $3,690 in 2013, according to HHS’s mid-range estimates. Those extra costs are tax-deductible.

How to get it: More than 65 health insurers have said they are now offering dependent coverage ahead of the September deadline.

But it’s up to individual employers to decide when to offer the provision, and experts say most companies will opt to do that during open enrollment. That period typically happens in early fall.

For plan-years that start on or after Sept. 23, insurers must give qualifying young adults a 30-day window to enroll, according to HHS. Starting to get confused? Consult with a professional. The “devil is in the details.”

Do you think disability insurance is only for old and the infirmed? Consider:

• In the past hour, almost 3,000 Americans became disabled. That’s 49 disabilities every minute. (Source: National Safety Council, “Injury Facts 2008 Ed.”)
• Seventy-five percent of disabilities are caused by an illness rather than an accident. (Source: Commissioner’s Disability Table)
• Sixty-two percent of all personal bankruptcies filed in the U.S. in 2007 were due to the inability to pay for medical expenses. (The American Journal of Medicine, June 4, 2009)

Employers may no longer be permitted to seperate deductibles for mental health and medical treatment under new proposed rules issued last week by the Departments of HHS, Labor, and Treasury. If your plan treats mental health differently than other medical issues contact your Independent agent or me at wl.hubbell@verizon.net.

This article begins a series concerning Fiduciary Responsibility under the Employee Retirement Income Security Act (ERISA). Few fiduciaries understand their duties, the liabilities associated with their responsibility, or whether they are even fiduciaries. This first article provides an overview of fiduciary responsibility under ERISA and some basic practices fiduciaries must take to exercise their duties.

Basics of Fiduciary Responsibility under ERISA

The role of a fiduciary is paramount underthe Employee Retirement Security Act.[1] ERISA provides protections for participants and beneficiaries and specifies fiduciary standards of conduct. Yet many who serve as fiduciaries are unaware of their legal obligations. There is also a misunderstanding about the extent of fiduciary responsibility service providers have under ERISA.

The operation of a retirement plan requires many participants. Some are clearly identified as Fiduciaries, others actions make them fiduciaries, while a third group acts under the direction or control of a fiduciary. ERISA defines a fiduciary[2] to the extent an individual
Exercises discretionary authority or control respecting management of a plan or disposition of its assets.
Renders investment advise or has authority or responsibility to do so, or
Has discretionary authority or responsibility in the administration of the plan.

A fiduciary has four primary duties[3] which must be carried out to discharge those duties solely in the interest of the beneficiaries and participants interest.

Duty of exclusive purpose
Duty of prudence
Duty to diversify
Duty to follow plan documents.

Failure to follow these duties may expose a fiduciary to personal liability to restore losses or profits. Willful violation also exposes fiduciaries to criminal penalties.

ERISA specifies five prohibited transactions[4] that a plan may not engage in with a party in interest. They include:

A sale of property between a party in interest and the plan.
Lending money between a party in interest and the plan.
Furnishing goods or services between the plan and a party in interest.
Transfer or use of plan assets by a party of interest.
Acquiring employer securities or real property in violation of ERISA.

A fiduciary may not:

Deal with plan assets in its own account or own interest.
Act in a transaction where the fiduciaries’ interest are adverse to the plan or its beneficiaries.
Individually receive anything of value from someone dealing with the plan.

There are basically two types of fiduciaries. The first is someone named in the plan document who has responsibility for managing the plan’s assets. The other are fiduciaries by reason of his/her actions becomes a fiduciary . Named fiduciaries include:

Plan administrator
Plan Trustee

If the plan so provides any person may serve as both Plan administrator and Plan trustee.

Plan documents usually control a Plan’s administrator in this regard. However, delegating responsibility is considered a fiduciary action. The appointing fiduciary has the obligation to prudently select and monitor the performance of its appointees. Thus when a plan manager appoints an investment manager the other fiduciaries are relieved of this responsibility and, as long as the appointing fiduciary is prudently selected and monitored there is a real transfer of risk of the investment decision responsibility.

An individual or entity can also become a fiduciary by filling a void. For example, a plan sponsor’s chief financial officer may begin to make investment decisions for the ERISA plan for lack of action by the Plan administrator or expedience. By so doing the CFO becomes a fiduciary without realizing the consequences. Such a sequence of events can lead to further exposure if the CFO discovers an act of self dealing between the employer and the plan. The CFO must remember that his/her duties to the plan are paramount.

ERISA specifies three circumstances[5] that give rise to liability for a fiduciary.

A fiduciary knowingly undertakes to conceal, an act or omission of another fiduciary, knowing that such act is a breach
A fiduciary in performing its responsibilities has enabled another fiduciary to commit a breach
The fiduciary has knowledge of another fiduciaries breach and does not make reasonable efforts to remedy the breach.

A service provider can be considered a fiduciary by virtue of rendering investment advice for a fee. While some acknowledge this responsibility as a co-fiduciary this approach does not transfer liability as previously discussed. The provider may later claim advisory capacity without discretion. Thus the importance of getting a service provider’s duties and responsibilities in writing. An investment consultant must acknowledge fiduciary status so they are bound by the duties of prudence, diversification, and adherence to plan documents.

Documentation is the cornerstone of demonstrating sound fiduciary governance and prudent decision making. The first step is to formally identify all plan fiduciaries and each fiduciary’s responsibility to the plan. Second all fiduciaries should meet on a regular basis. Thirdly, no fiduciary should perform multiple functions for a plan; the opportunity for conflict of interest is just too great. Finally, all documents and paperwork that relate to the plan or the decision-making process should be organized and accessible.

Conclusion

Litigation for fiduciary breaches under ERISA is growing exponentially. The burden of proof in such cases lies with the plan fiduciaries. Liability is not necessarily determined by investment performance, but on whether prudent investment practices were followed.

The most effective strategy for achieving the “exclusive purpose” of providing benefits for plan participants is to establish and follow documented procedures that demonstrate a prudent process. Such an approach will provide greater clarity into plan composition and performance, enabling fiduciaries to make better decisions and help their plan participants retire with meaningful benefits.

[1] Brussian v. RJR Nabisco
[2] ERISA Para. 3(21) (A).
[3] ERISA Para. 404(a)(1).
[4] ERISA Para. 406(a)(1).
[5] ERISA Para. 405(a).

401(k) plan sponsors, unable to persuade employees to enter into plans in the 1980s and 1990s, were finally seeing broad participation in 2008, just before the financial markets all but collapsed. Now, employers are in the unenviable position of defending workers’ investment in high-return, risky assets. According to Greenwich Associates’ new U.S. Defined Contribution (DC) Pension Plan Research Study, enrollment of eligible employees into corporate 401(k) plans was 79 percent in 2008, up several percentage points from 2006. More than four out of 10 large DC programs and almost 50 percent of smaller programs automatically enroll workers into corporate 401(k) plan unless they opt out. As businesses have begun adopting automatic enrollment, they have also been changing default investment options from conservative funds to target retirement date funds that frequently expose the funds’ equity to more risk. Participants in these plans are hit particularly hard by recent economic failures, as many employees have a large chunk of their personal equity–and in some cases, their total retirement savings–bound up in a DC plan.