Employee Benefits: Three Capitol Reforms

EMPLOYEE BENEFITS: THREE CAPITOL REFORMS

Washington, DC is bustling with worker and health-care reforms. Employee benefits administrators need to explain to workers how the new legislation can improve their lives. Reforms some of your workers might find beneficial include a new 401(k) option for small businesses, new COBRA provisions, and a tax revision to Split-Dollar Life insurance.

Originally, firms with fewer than 100 employees shied away from 401(k) plans because of nondiscrimination rules that restricted the amounts that highly paid employees could contribute. SIMPLE 401(k) plans allow such employees higher, voluntary salary deductions from pretax dollars to fund their plans.

Under this option, employer contributions must be 100% vested in the employee. The employer's share matches the employee's contribution of no more than 3% of his or her compensation, or the employer can make a non-elective contribution of 2% of compensation for all eligible employees as a group. An employer's contribution can be reduced for two years under certain circumstances.

COBRA allows workers to continue their Health insurance temporarily after they lose their jobs or voluntarily depart under certain circumstances. The Health Insurance Portability and Accountability Act of 1996 includes these new COBRA provisions:

• Health-care benefits are extended for babies born to or children adopted by employees who are eligible for COBRA.
• While an employee with a preexisting condition who has switched jobs may be denied coverage by the new employer for 12 months, this gap may be bridged by the employee's previous company's Health insurance.
• Employees who become disabled after becoming eligible for COBRA coverage can add 11 months of Disability coverage to their existing right to purchase 18 months of coverage.

Split-Dollar Life coverage divides the cash value of the policy between the employer and the employee. Even though the policy belongs to the employee, who can designate any beneficiary, the employer will eventually receive the share it paid of the premium costs. In essence, the employee receives a tax-free loan from the employer.

Under an IRS revision, the employee will be taxed for the policy's cash value above the amount contributed by the employer. Therefore, the employee's contributions and any additional cash value will be taxed, which contradicts the expectation of tax-free Life coverage.

If you're concerned about these or other insurance reforms, call our agency for a clear look at the benefits and consequences.