Benefit Plan Management in a Collective Bargaining Environment

A perspective to gain trust and compromise more efficiently

Managing employee benefit plans in a collective bargaining environment can be challenging and can lead to friction between the employer and the union.  Employee benefit offerings and wages tend to be the two biggest hurdles during the negotiation process as those are the two biggest expenses facing the employer.  We believe there are some steps that can be taken during the bargaining cycles that can help lead to a more productive, efficient and often more rewarding process when actual negotiations begin.

Educate the Members

Unfortunately, health care costs continue to rise, and keeping the same level of benefits for the union is often not sustainable.  Before throwing new ideas on the table at bargaining time, the employer should be educating the union on new ideas in the health care market and sharing annual benchmarking studies.  Examples of new and innovative programs for education would be:

  • Narrow PPO Networks
  • On-Site or Near Site Clinics (this may not be for everyone), find out the best practices when considering onsite clinics
  • Concierge Services
  • Technology Platforms – Price Transparency
  • Compliance – Affordable Care Act Taxes and Updates on recent legislation
  • Educating the members keeps them abreast of what is new in the market and can help narrow down the 1 or 2 or 3 areas to focus in on as options at negotiation time.

Conduct Frequent Meetings

If possible, set up monthly meetings.  We have seen many employers create healthcare committees or advisory groups that are made up of union representation from the various bargaining units in addition to the HR and/or Finance Teams of the employer.  This venue allows for constant education to union leadership and helps them to feel involved in the ongoing administration and decision-making of the plans.  This is also a great opportunity to have representatives from your vendors in place to help build that rapport and relationship with the unions, so that all parties have a “voice.”

Be Transparent

Even if it unreasonable to set up an insurance committee or to meet monthly, sharing actual data of your plan’s experience on a monthly or quarterly basis is vitally important.  This holds most true for the groups that are self-funding their plans.  Key information to share would be:

  • Medical Costs PEPM (per employee per month) year over year
  • Pharmacy Costs PEPM year over year
  • Large claims above a certain threshold (de-identified of course) with a diagnosis
  • Utilization metrics of the Top 10-15 cost categories of the group
  • Top 25 drugs by dollar amount and by script count
  • Benchmarking Data of Plan Designs and Costs and Contributions, read more

An additional consideration is to project your plan costs out over the next 3-5 years to illustrate the “Do Nothing” impact on future costs and employee contributions.    While this entails some assumptions, it certainly helps get the attention of the key stakeholders.

Many labor agreements call for the employees to pay a certain % of the premium, and if this is the case, both the employer and the union are in the same boat and have an incentive to work together to keep the plan affordable – for both the employer and the members.  When the union sees this type of information, they will have a greater understanding and feel an obligation to work closely with the employer in developing strategies and solutions to help change the trends.

Utilize Subject Matter Experts

This should not fall solely on the HR or Finance Teams within your organization.  Lean on your consultant and vendor partners to assist in developing the information to share and the topics to discuss.  After all, this is what you are paying them to do.

For more information or questions regarding managing employee benefit plans in a collective bargaining environment, contact the Findley consultant you normally work with, or Dave Barchet at Dave.Barchet@findley.com, 216.875.1914.

Published November 26, 2019

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© 2019 Findley. All Rights Reserved.

Group Benefits Testing Overview: There’s Still Time for 2019

As we approach the end of the calendar year, many HR staffs are working diligently on open enrollment, but there are some pesky IRS rules that may get overlooked in this busy time of year.  Yes, we mean the rules regarding nondiscrimination testing.  There are several required health and welfare plan nondiscrimination tests contained in the Internal Revenue Code.

Each of the tests pertains to different benefits and has slightly different aims. In general, all are designed to ensure employer sponsored health and welfare plans are nondiscriminatory in the value of the benefits and in determining who is eligible for the benefits.  The aim is to prevent employers from favoring highly compensated employees, key employees and 5% or more owners with more access to benefits or with richer benefits. If plans are tested after the end of the plan year, it is called a retrospective test. If you test plans prior to the plan year-end, it is considered a prospective test.  While it’s always better to conduct these tests earlier in the year, there’s still time to identify issues prospectively for 2019 calendar year plans and make corrections.

Section 125 Testing

Who should test? Any plan sponsor of cafeteria plans (e.g. pre-tax benefits to employees for things like insurance premiums, healthcare expenses, dependent care expenses and even adoption fees) should test.

What happens if my plan fails?  If the test is done retrospectively, you may need to re-characterize the “discriminatory benefits” as taxable benefits or the plan risks losing its tax-favored status. If the test is done prospectively, you can often make corrections in time to avoid that outcome.

Section 105(h) Testing

Who should test? Any plan sponsor of a self-funded health benefit plan, which can include a medical/prescription drug plan, dental benefits plan, healthcare flexible spending accounts (FSAs) or even stand-alone health reimbursement arrangements (HRAs), should test.

What happens if my plan fails?  If the test is done retrospectively, you may need to re-characterize any “excess reimbursements” as taxable income. The plan keeps its tax-favored status and the non-highly compensated employees in the plan are not affected. If the test is done prospectively, you can often make corrections in time to avoid failures.

Section 129 Testing

Who should test? Any plan sponsor of a dependent care FSA plan should test.

What happens if my plan fails?  If the test is done during the year and the failure is caught early enough, an employer can quickly make changes, communicate those changes to affected employees and avoid any issue.  If done retrospectively, you may need to re-characterize the “excess reimbursements” from their dependent care FSA as taxable benefits and re-issue W2s. If you have a FSA plan, you may already have had Section 129 testing conducted on your behalf, but now is the time to check in on those results. Note this plan is the most commonly failed because of its unique utilization requirements.

Section 79 Testing

Who should test? Any plan sponsor of a group term life plan should test.

What happens if my plan fails?  If the test is done during the year and the failure is caught early enough, an employer can quickly make changes, communicate those changes to affected employees and avoid any issue.  If done retrospectively, key employees will lose the income tax exclusion of the first $50,000 of life insurance coverage.  They will have to include in their income the greater of the actual cost of all of their employer-provided coverage or the rates for that coverage that are provided in Code Section 79. Non-key employees are not affected by the failure.

Section 137 Testing

Who should test? Any plan sponsor of an adoption assistance program, which provides a limited income tax exclusion ($14,080 in 2019) for employer-provided adoption assistance, should test.

What happens if my plan fails?  If the test is done during the year and the failure is caught early enough, an employer can quickly make changes; communicate those changes to affected highly compensated employees and owners of 5% or more of the employer’s stock, capital or profit interest.  If the test is done retrospectively, you may need to re-characterize the “discriminatory benefits” as taxable benefits or the plan risks losing its tax-favored status, and all plan participants lose the income tax exclusion.

Section 127 Testing

Who should test? Any plan sponsor of an educational assistance program, which provides a limited income tax exclusion ($5,250) for the employer’s payment certain educational expenses, should test.

What happens if my plan fails?  If the test is done during the year and the failure is caught early enough, an employer can quickly make changes; communicate those changes to affected highly compensated employees and owners of 5% or more of the employer’s stock, capital or profit interest.  If the test is done retrospectively, you may need to re-characterize the “discriminatory benefits” as taxable benefits or the plan risks losing its tax-favored status, and all plan participants lose the income tax exclusion.

As in dealing with most IRS laws and regulations, it’s important to have a trusted advisor. Please reach out to your Findley consultant or whomever you’ve outsourced the administration of your health and welfare plans. Make sure your plans have been tested for 2019. Better yet, check your plan designs before the 2020 testing year begins to assess the likelihood of passing the required nondiscrimination tests.

Questions regarding how to develop an innovative HR strategy or assess your current HR function or talent, contact the Findley consultant you normally work with, or Dave Tighe at Dave.Tighe@findley.com, 419.327.4149, or Sheila Ninneman at Sheila.Ninneman@findley.com, 216.875.1927.

Published November 21, 2019

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© 2019 Findley. All Rights Reserved.

Transparency Rules Could Shake Up Hospitals and Carriers

The Trump Administration is pushing ahead with rules requiring hospitals to disclose their contracted rates with insurance carriers and Preferred Provider Organizations (PPOs) for 300 “common” services, effective January 1, 2021.

The administration’s push for transparency in healthcare pricing will also require insurance carriers to disclose the rates they negotiate with hospitals and physicians. It is expected that some hospitals will challenge the transparency rule in court, and many insurance carriers are also likely to object to the new regulations.

Will Transparency Decrease Costs?

If the disclosure rules go into effect, what is the likely prognosis for the cost of healthcare? Will the disclosure of contracted rates spur competition and cause hospitals to reduce prices to maintain business? Recall years ago, when Lasik providers began to advertise and actively compete with each other – the result was reduced fees for laser eye surgery.

Or, conversely, will the new disclosure rules lead lower-cost hospitals to increase prices for services, so that they are more aligned with their pricier competitors?

A desire for transparency in healthcare pricing has been an ongoing issue – and numerous experts believe it is one of the reasons true “consumerism” is difficult to achieve. It remains to be seen if competition in healthcare can truly drive down costs.

Potential Effect on Reimbursement

In recent years, there has been a change in reimbursement methods from volume-based methods to those based on quality and value. The new rules may drive the creation of even newer algorithms that blend allowed charges with quality scores in an effort to come up with the “best value.”

Proponents of “Fair Market Pricing” may experience a boost, too, as they are able to illustrate a maximum allowed cost for a variety of procedures in a given geographic area. It is unknown, however, if employers will embrace such a change in how charges are derived and subsequently, expose their employees to balance billing and/or collections.

As additional details about the disclosure rules for contracted rates become available, we will provide updates. Questions? Contact the Findley consultant you normally work with, or contact Bruce Davis at 419.327.4133 or bruce.davis@findley.com.

Published November 15, 2019

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© 2019 Findley. All Rights Reserved.

Building a Strategic Plan for Your Health Benefits Program

Attracting and retaining the right people drives the performance of your organization. In today’s economy, employees and candidates are making their job decisions based on the benefits and perks offered. Your health benefits program is the #1 benefit candidates seek over all other benefits and perks– by a wide margin.[1] At the same time, health benefits costs continue to rise at rates well above general inflation[2]. These competing factors make maintaining competitive but cost-effective health benefits a strategic business priority.

Given the changes occurring in the healthcare market, employers have a significant opportunity to redefine their benefits mission and build a multi-year healthcare strategy. Employers should continue to evaluate traditional approaches, such as plan design and cost-sharing. It’s also critical to take advantage of emerging new resources, such as: changes in health delivery by the providers and new networks; changes driven by payment reform; and provider shifts to value-based care.

To build a multi-year benefits strategy successfully, leadership support and effective change management are critical.

We recommend utilizing The Findley Process, as follows:

Phase 1 – Gather data for actuarial analytics and benchmarking and build a multi-year financial modeler.

Phase 2 – Develop a strategic plan using action-oriented Compression Planning to develop objectives, prioritize tasks, and define change management steps.

Phase 3 – Implement the multi-year strategy and new benefits philosophy statement.

Phase 1: Construct Background Data and Strategic Tools

Phase 1 of your process should focus on developing analysis to give stakeholders a baseline understanding of your health benefits program design, cost drivers, and competitiveness. Actuarial data analytics, projections, and benchmarking provide the critical data for stakeholders to weigh the benefits of maintaining the status quo vs. considering, prioritizing, and launching forward-thinking strategies.

Gather and analyze your plan’s cost in recent years then identify the key drivers of cost under your current plan design. Next, identify any immediate plan design opportunities to build into your multi-year plan. Finally, build an annual financial projection model to fit your strategic planning horizon (for example, five years). The model should take into account projected claims, contribution strategies, and reserve/risk monitoring. It should be used to set metrics and evaluate the effectiveness of your strategic plan going forward.

Phase 2: Define Your Objectives Using Action-Oriented Strategic Planning

Defining your multi-year strategy requires key leadership engagement and effective change management. As you know, your organization’s leaders understand the importance of strategic planning to drive business performance, but may not have the time required for the typical multi-day approach. Instead, consider using Compression Planning – a facilitation technique designed for busy business leaders to rapidly identify and build consensus around key goals and action items to form the basis of the strategic plan.

Before the Compression Planning session, your leaders should receive the actuarial data analytics, benchmarking results and analysis of your current plan, and your baseline for strategic planning and changes. In the Compression Planning session, a trained facilitator poses prepared questions to guide leaders through brainstorming and action planning. Typical questions may include:

  • Three years from now, what does a culture of health and well-being look like at your organization?
  • What do you want your health and welfare benefits environment to look like in 20XX?
  • What should employees be responsible for? What should the organization be responsible for?
  • What unique challenges exist in your environment (either within or external to the organization)?
  • What changes with healthcare providers can be leveraged?

The facilitator then leads a prioritizing activity to define and build consensus around the top goals and objectives that become part of your strategic plan. Action steps for your strategic plan are then developed in Phase 3.

Phase 3: Create, Implement, and Monitor Your Multi-Year Strategic Plan

In Phase 3, your project leaders define the multi-year milestones and metrics for the objectives and develop a high level change management strategy consisting of the major initiatives and timelines for implementation.  Once this strategic framework is in place, the interactive forecast modeling tool established in Phase 1 becomes the key tool for defining plan design changes and modeling annual budgets to achieve your financial goals.

Beyond the strategic plan, many organizations develop a healthcare benefits philosophy statement. This statement serves as the mission for health and well-being at your organization; defining the organization’s commitments and employee responsibilities that serve as the foundation for the strategic and tactical steps taken each year.

Once the strategic plan is set, a detailed change management project plan defines each year’s implementation steps and timing. Educating and empowering participants to understand benefits, use healthcare wisely, and take responsibility for their health and well-being are critical elements to achieving the strategic plan objectives.

Monitoring actual vs. forecast experience begins immediately and continues throughout the course of the multi-year strategic plan, measuring and evaluating your actual experience against the metrics and milestones set in the planning process.

In Perspective

Organizations that have a strategic plan and process for managing their benefits programs report better company performance and more success in attracting and retaining employees.[3] Employer-provided health benefits are an organization’s biggest benefits cost,[4] and the key employer-provided benefit that attracts new employees and retains your current talent. Your employer-provided health benefits are also likely your most complex benefits offering. That’s why a strategic approach and process is a must to maintain a health benefits program that helps your business keep its competitive edge.

Questions? For additional information about developing or enhancing your strategic plan, contact the Findley consultant you normally work with, or info@findley.com

Posted November 15, 2018

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[1] Which Benefits Drive Employee Satisfaction? GlassDoor Economic Research, June, 2016.

[2] Kaiser Family Foundation Employer Health Benefits Survey, 2018.

[3] 2017 Strategic Benefits Survey-Strategize with Benefits, Society for Human Resource Management

[4] Health benefits average 8.2% of total compensation nationally. Employer Costs for Employee Compensation, Bureau of Labor Statistics, June 2018.

Reminders of What’s New for Plan Sponsors in 2019

Retirement and health and welfare plan sponsors have a relatively short list of employee benefit changes that begin on or around January 1, 2019. However, some changes were announced so long ago that they could be easily forgotten; here’s a refresher.

For Sponsors of Disability Welfare Plans and Retirement Plans that Provide Disability Benefits

Background

New claims procedures regulations for disability benefits claims, after multiple delays, have finally been set. The Department of Labor (DOL) requires that the new procedures apply to disability claims that arise after April 1, 2018. The rules generally give disability benefit claimants the same level of procedural protections that group health benefit claimants have after the enactment of the Affordable Care Act (ACA). Its aim is to protect disability claimants from conflicts of interest; ensure claimants have an opportunity to respond to evidence and reasoning behind adverse determinations; and increase transparency in claims processing.

What Do Plan Sponsors Need to Do

For most plan sponsors, ERISA claims procedures are described in their summary plan descriptions. That means that the new disability benefit claims procedures require a summary of material modifications. Certain other plan sponsors will want to consider amending their plans to provide that the disability determination under their plan is made by a third party, such as the Social Security Administration or their long-term disability benefits insurer. Plan sponsors are advised to adopt any necessary amendments on or before the last day of the plan year that includes April 2, 2018. For calendar year plans, the amendment deadline is December 31, 2018.

For Sponsors of Retirement Plans

Hardship Withdrawals

Background

Both the December 2017 Tax Cuts and Jobs Act (TCJA) and the February 2018 Bipartisan Budget Act (BBA) made important changes to hardship withdrawals, which can be provided in 401(k), 403(b), and 457(b) retirement plans. The TCJA change made hardship withdrawals more difficult to get for casualty losses, because the damage or loss must be attributable to a federally declared disaster. For more information see our article here. BBA changes generally make hardship withdrawals much more attractive and easier to administer by eliminating certain hurdles for plan participants.

What Changed for Plan Participants

Plan participants no longer need to take the maximum available loan under the plan before requesting a hardship withdrawal for plan years beginning in 2018 (January 1, 2018 for calendar years). Effective on the first day of the applicable plan year beginning in 2019 (January 1, 2019 for calendar year plans), BBA eliminated the rule requiring that employees who take a hardship distribution must cease making salary deferrals for six months. In addition, BBA created a new source of funds for hardship withdrawals— any interest earned on salary deferrals. These hardship withdrawal changes are described here.

What Do Plan Sponsors Need to Do

The TCJA change to hardship withdrawals is an administrative one that impacts internal procedures.  However, BBA changes to hardship withdrawals are likely to require a plan amendment to be adopted on or before the end of the 2019 plan year (December 31, 2019 for calendar year plans), and a summary of material modifications to be issued soon thereafter.

402(f) Special Tax Notices

Background

On September 18, 2018, the Internal Revenue Service (IRS) issued updated model notices to satisfy the requirements of Internal Revenue Code (Code) Section 402(f). The modifications are the result of the TCJA, which extended the time within which a participant can roll over the amount of a plan loan offset to effect a tax-free rollover of the loan offset amount. The new extended period applies to accrued loan amounts that are offset from a participant’s account balance at either plan termination or the termination of employment. A detailed description of these changes and links to the new model notices can be found here.

Defined Benefit Plan Restatements

In March 2018, the IRS released Announcement 2018-15, stating that it intends to issue opinion and advisory letters for preapproved master and prototype (M&P) and volume submitter (VS) defined benefit plans that were restated for plan qualification requirements listed in the 2012 Cumulative List. An employer that wants to use a preapproved document to restate its defined benefit plan will be required to adopt the plan document on or before April 30, 2020.

403(b) Plan Restatements

The deadline to restate preapproved 403(b) M&P and VS plans is March 31, 2020, according to Revenue Procedure 2017-18. 403(b) plans can be sponsored by a tax-exempt 501(c)(3) organization (including a cooperative hospital service organization defined under Code Section 501(c)), a church or church-related organization, and a government entity (but only for its public school employees). For more detailed information, see our article here.

VCP Applications

On September 28, 2018, the IRS issued Revenue Procedure 2018-52, which provides that beginning April 1, 2019, the IRS will accept only electronic submissions to its Voluntary Compliance Program (VCP) under the Employee Plans Compliance Resolution System (EPCRS). The new procedure modifies and supersedes Revenue Procedure 2016-51, which most recently set forth the EPCRS, a comprehensive system for correcting documentary and operational defects in qualified retirement plans. Revenue Procedure 2018-52 provides a 3-month transition period beginning January 1, 2019, during which the IRS will accept either paper or electronic VCP submissions.

2019 Plan Limits

In Notice 2018-83, the IRS issued the cost-of-living adjusted limits for tax-qualified plans. A number of these limits were increased from 2018 levels. For a detailed listing of these limits, see our article here.

For Sponsors of Health Plans

The IRS issued Revenue Procedure 2018-34 in May 2018, which sets the 2019 affordability threshold for the ACA employer mandate at 9.86 percent. Coverage is affordable only if the employee’s contribution or share of the premium for the lowest cost, self-only coverage for which he or she is eligible does not exceed a certain percentage of the employee’s household income (starting at 9.5 percent in 2014, and adjusted for inflation). See our detailed article here.

For Sponsors of High Deductible Health Plans (HDHPs)

In May 2018, the IRS announced in Revenue Procedure 2018-30 the 2019 limits for contributions to Health Savings Accounts (HSAs) and definitional limits for HDHPs. These inflation adjustments are provided for under applicable law. For a more detailed description of the increases, see our article here.

What Do Plan Sponsors Need to Do

Plan sponsors should review their employee benefit plans to determine if any of them are affected by the changes listed above.

Questions?

Please contact the Findley consultant you regularly work with or Sheila Ninneman at Sheila.Ninneman@findley.com or 216.875.1927.

Posted November 12, 2018

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