401(k)s and Retirement
IRS, Court Clarify Some Compliance Questions

Final IRS rules and a recent court decision likely will clear up some employers’ retirement compliance questions, but final 401(k) disclosure regulations remain in limbo.

The IRS has published final rules on automatic contributions that clarify how to handle automatic-contribution arrangements for rehired workers.

The IRS rules state that when employees who have been terminated for one year or more are rehired, the plan sponsor can automatically enroll the worker in the plan at the minimum deferral percentage rather than the deferral percentage rate prior to termination.

The rules previously required that employees receive notice of their automatic enrollment in the plan at least 30 days prior to eligibility and annually thereafter. This caused a problem for plans that allowed participants to join the plan immediately after being hired. The IRS now gives plan sponsors some wiggle room if the notice is supplied “as soon as practicable.”

Another 401(k) compliance question was resolved in a recent federal appeals court ruling. In the first decision of its kind, the 7th U.S. Circuit Court of Appeals ruled that employers do not have a fiduciary duty to find the plan with the lowest fees.

The court decision likely deals a blow to at least 20 similar excessive-fee cases around the country and is a setback for the Department of Labor (DOL), which has been pushing employers to find the lowest-cost investment funds for employees.

While the court ruling clears up some uncertainty regarding plan costs, the troubling issue of fee disclosure requirements still lingers.

In 2007, the DOL created new rules for defined contribution plans that required plan sponsors to provide the department with annual fee-and-compensation information (such as revenue-sharing agreements) in their Form 5500 financial reports starting in 2009. However, no legal requirement exists that would force service providers to give that information to the plan sponsors.

The DOL proposed a new rule requiring service providers to hand over that information but failed to gain approval before President Barack Obama took office. Because Obama’s DOL team is still being assembled, that proposal’s future is now uncertain.



Health Benefit Costs
Employers expect 6% Increase in 2009 Plan Costs

Most employers say they are committed to making significant investments to improve their workers’ health this year despite an expected increase in health plan costs in 2009, according to a pair of surveys.

A preliminary report by Watson Wyatt and the National Business Group on Health (NBGH) found that large U.S. employers expect the cost of health benefits to rise 6 percent in 2009 - the same rate of increase as 2007 and 2008.

Rising costs and a battered economy hasn’t yet deterred companies from keeping health care benefits a top priority. According to a recent survey by Hewitt Associates, nearly two-thirds of employers (65 percent) said they are continuing to make significant investments to improving their workers’ health and productivity. However, the number of companies that have shifted their focus to solely mitigating health care costs has risen this year to 31 percent from 15 percent in 2008. Also, nearly one-fifth (19 percent) of those surveyed said they expected to move away from directly providing health care benefits to employees over the next three to five years – a sharp jump from 4 percent in 2008.

The Watson Wyatt-NBGH survey echoed that trepidation, finding that only 62 percent of employers this year are very confident they will be able to provide health benefits 10 years from now. In 2008, 73 percent thought they would still be providing benefits in a decade.

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• IT’S ALL ABOUT TRUST: A report by the Pharmacy Benefit Management Institute found that financial transparency is the top determinant in employer satisfaction with their PBM relationship. This is the third year that transparency has topped the survey’s list.