Keeping up with changes in the regulatory and legislative landscape is an integral part of a successful sales agent's job. Changing regulations provide the agent with a specific purpose for maintaining strong client relationships. To that end, the International Foundation of Employee Benefit Plans recently held its annual Washington Legislative Update conference, where participants listened to and discussed many issues with experts, legislators, and other presenters. Of all the issues, however, five in particular regularly received extended analysis and discussion.
Following are the five biggest legislative issues facing the benefits market today and what they mean for your business.
#1: Health care reform
The three employee benefit buzzwords during the 2008 presidential election will be health care, health care, and health care.
There are several aspects of the health care issue: political, social, and economic. While candidates have proposed various reforms, the underlying issues can be clearly identified. These include a dialogue about whether health care is a federal or state issue and whether employers, individuals, or the government should be held responsible for health care costs and choices.
Discussion also centers around who should be covered -- children or adults -- and whether health insurance coverage should be mandated. If coverage is mandated, should it be basic or comprehensive? Finally, should insurance or health care be provided in the public or private marketplace? Political pundits suggest there is voter enthusiasm for reform but that voters may not be able to clearly define what affordable health care means to them on an individual basis.
#2: Fee disclosures
Policy makers are increasingly interested in the disclosure of service provider fees for employee benefit plans, particularly those for 401(k) fiduciaries. This focus is prompted by several industry trends -- primarily, the role that defined contribution plans play in an individual's long-term financial security and an increasing number of court cases charging that plan providers levy "excessive" fees. In 2006, 401(k) plan expenses were estimated to cost $30 billion to $40 billion annually.
Service plan providers may charge fees for several different items. There are typically three types of fees: administrative, investment, and compliance. The intended purpose of a Department of Labor's proposed rule is to create transparency and expose excessive hidden costs. Proposed regulations address disclosure, particularly with respect to revenue sharing, loosely described as administrative fees deducted from investment returns based on the value of assets held. Some of these fees are then paid to plan providers. Proposed regulation would amend ERISA to require disclosure concerning services provided, annual "charges" for each service component (administrative, investment, and compliance), financial relationships that materially benefit providers, revenue-sharing provisions, and the impact of share class on the price of mutual funds available in the plan.
#3: Qualified default investment alternatives
Final Department of Labor rules released earlier this year define qualified default investment alternatives. As a result of the Pension Protection Act of 2006, employers were allowed to automatically invest an employee's assets in a self-directed plan in a qualified default investment alternative (QDIA) unless the employee specifically "opted out" by choosing an alternative investment. The rule relieved plan fiduciaries from liability provided the plan's QDIA met certain qualifications.
Investment options must meet certain requirements to qualify as QDIAs. There may not be financial or other penalties that restrict the ability of a participant or beneficiary to transfer the investment from the qualified default investment alternative to any other investment alternative available under the plan. The QDIA must be managed by an investment manager or an investment company registered under the Investment Company Act of 1940. It must be diversified so as to minimize the risk of large losses and may not invest participant contributions directly in employer securities. Finally, a QDIA may be a life-cycle or targeted-retirement-date fund, balanced fund, or professionally managed account.
#4: Family and Medical Leave Act
Changes in the Family and Medical Leave Act are also making the news. In January 2008, the president signed into law H.R. 4986, also known as the National Defense Authorization Act, for fiscal year 2008. This act includes an amendment to the FMLA of 1993 to permit a spouse, child, parent, or "next of kin" to take up to 26 work weeks of leave to care for a member of the armed forces, including members of the National Guard or Army Reserves, who is undergoing medical treatment, recuperation, or therapy; is in outpatient status; or is otherwise on the temporary disability retired list for a serious injury or illness.
#5: Phased retirement
One of the hottest trends in retirement planning is phased retirement. Phased retirement is gaining popularity because it allows for an employee to slow the financial adjustment and helps employers by lessening the effect of an aging workforce. Provisions in the Pension Protection Act ease restrictions on defined benefit plan distributions to active workers who are ages 62 or older. Plans may pay retirement benefits to participants who reached normal retirement age but still work for the plan sponsor. "Normal retirement age" is defined as an age reasonably representative of the typical retirement age for the industry of the covered workforce. As a practical matter, employers should conduct a demographic analysis in order to predict not only their labor needs, but also plan for retention of valuable older workers who may be considering retirement.
Keeping abreast of changes is important in many ways. Doing so provides sales agents who actively apply changes to their clients' needs with a clear competitive advantage. At the very least, it allows for continued relationship building and, in the best case, drives positive sales growth.
Michael Wilson is CEO of the International Foundation of Employee Benefit Plans. He can be reached at exec@ifebp.org.
