issue 24, Fall 2018 Conferoweb).pdf · 2 Fall 2018 Confero 3content Tax Tip: HSA Contributions May Equal Fatter Nest Eggs 24 Designing Employee Benefits to Address Educational Debt

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C o n f e r o

A quarterly publication of Fiducia Group, LLC

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w e l c o m e t o t h e F a l l 2 0 1 8 I s s u e o f C o n f e r o

Do you understand all the benefits that are offered by your business? Are you a plan sponsor that wants to increase your offerings to your employees but don’t know how make the right changes to benefit them? Well this issue of the magazine is for you. In this issue, we strive to give you the most up-to-date information on employee benefits – what benefits are becoming more popular and the best ways to use certain benefits. As always, the contributors to this issue are some of the best and brightest minds in the employee benefits field. Every one of them has expert experience on the topic they have covered. We hope that in this issue we have given you the knowledge to understand the world of employee benefits better.

M a x K e s s e l r i n g

Confero 1Fall 2018

Confero 32 Fall 2018

c o n t e n t

Tax Tip: HSA Contributions May Equal

Fatter Nest Eggs24 Designing Employee Benefits

to Address Educational Debt 30 Prescription Benefits Management36 Trump Issues Executive Order

Impacting Retirement Plans42

Editor’s Letter01

Embracing your employee Benefits

Renewal Season18

Contributors04

Benefits of Using a WRAP Plan10

16

08

By Max Kesselring

By John M. Wirtshafter

By David Spiegel

By Brian Dobbis By Michelle Capezza

By Michael Miele

By Charley Kennedy


Michael Miele, FSA, MAAA

Mike is a health care actuary with significant experience in all aspects of employer health and welfare benefits with a specialty in Pharmacy Benefit Management (PBM), data analytics, and medical management. Mike held many senior leadership positions during the last

Capital Rx

Michelle Capezza, ESQ.

MICHELLE CAPEZZA is a Member of Epstein Becker Green in the Employee Benefits and Health Care and Life Sciences practices, and co-leads the Technology, Media, and Telecommunications service team (Visit the

Epstein Becker Green, PCCharley Kennedy

Charley is the Managing Principal of Fiducia Group. He is a member of Fiducia Group’s Investment Committee and is the firm’s service partner liaison. Charley consults with clients on investments, fiduciary responsibility, vendor price negotiation, vendor searches and participant advocacy. Prior to founding Fiducia Group in 2008, Charley was the Chief Administrative Officer of a national retirement advisory firm and the firm’s eastern

Fiducia Group, LLCBrian Dobbis, QKA, QPA, QPFC, TGPC

Brian Dobbis is responsible for managing Lord Abbett’s IRA business. His areas of expertise include: IRAs, 401(k), 403(b), and 457 retirement plans. Mr. Dobbis joined Lord Abbett in 2002, and held the positions of Retirement

Lord Abbett

o u r c o n t r i b u t o r s

David Spiegel

David works alongside his clients to offer creative solutions for their employee benefits programs. His long term strategic approach focuses on cost containment, compliance, and technology solutions. David has experience

Brown & Brown New York, Inc.

John M. wirtshafter, ESQ.

John M. Wirtshafter is an attorney at McDonald Hopkins LLC, a business advisory and advocacy law firm. As a Member in the Tax and Benefits Department, he has extensive experience assisting mid-sized and Fortune 500 companies with employee benefits and executive compensation issues and opportunities, including benefits issues arising in mergers and acquisitions, IPOs and bankruptcies, and the design and implementation

McDonald Hopkins LLC

Fiducia Group, LLC

Westminster Consulting, LLC

P u b l i s h e r

Roland Salmi

S ta f f C o n t r i b u t o r s

Michelle Capezza

Brian Dobbis

Michael Miele

David Spiegel

John M. Wirtshafter

F e at u r e d C o n t r i b u t o r s

Max KesselringE d i t o r - i N - C h i e f

Sheila Livadas

Roland Salmi

E d i t o r i a l S ta f f

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The information contained in this magazine is for general information purposes only. The information is provided by Fiducia Group, LLC (FG) and, while every effort is made to provide information that is both current and correct, FG makes no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the magazine or the information, products, services, or related graphics contained within the magazine for any purpose. Any reliance you place on such information is therefore strictly at your own risk.

In no event will FG be liable for any loss or damage, including, without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of, or in connection with, the use of this magazine.

Consultant, Retirement Research Associate, and Retirement Analyst. He began his career in the financial services industry in 1997. Mr. Dobbis is a frequent guest speaker at wealth management conferences throughout the United States. The American Society of Pension Professionals and Actuaries (ASPPA) recognizes Mr. Dobbis as a Qualified 401(k) Administrator (QKA), a Qualified Plan Administrator (QPA), a Qualified Plan Financial Consultant (QPFC), and a Tax-Exempt & Governmental Plan Consultant (TGPC). He earned a BA in communications from Rowan University, and also is a holder of the Series 6, Series 7, Series 24, Series 63, and Series 65 licenses.

blog at www.technologyemploymentlaw.com.). She practices law in the areas of ERISA, employee benefits, and executive compensation and provides counsel on qualified retirement plans, ERISA fiduciary responsibilities, nonqualified deferred compensation arrangements, employee welfare benefit plans, equity/incentive programs, and benefits issues in corporate transactions across various industries, including financial services, health care, technology, media, telecommunications, hospitality, and retail. Michelle was recommended for her work in employee benefits and executive compensation on a national level in The Legal 500 United States (2013, 2014 and 2016 to 2018), selected to the New York Metro Super Lawyers (2014-2018), and New York Top Women Lists (2014-2017) in the area of employee benefits.

12 years at Arthur J. Gallagher including the formation of the National Pharmacy Practice. Prior to joining Gallagher, Mike was the founder of PatientCentrix in 1995. PatientCentrix was a medical management and data management provider which was sold to SHPS Healthcare in 2004. Mike is one of the founders of predictive modeling as it applies to health care medical management and health insurance underwriting.

region consulting practice leader. Charley has 27 years of retirement plan experience and has held multiple senior-level positions with national retirement consulting firms and investment companies. Charley is a founding board member and secretary of the Pittsburgh Retirement Professionals and serves on the Government Affairs Committee of the National Association of Plan Advisors. Community involvement includes serving on the Board of Directors for Valencia Woods at St. Barnabas and John’s Way. He is also a Trustee and student ministry leader for his church. Charley is a C(k)P® (Certified 401(k) Professional) in good standing with The Retirement Advisor University in collaboration with UCLA Anderson School of Management Executive Education. Charley is also an Accredited Investment Fiduciary Analyst™ (AIFA®) through the Center for Fiduciary Studies and a Qualified Plan Financial Consultant (QPFC) through the American Society of Pension Professionals and Actuaries (ASPPA). He holds a B.A. in Accounting from Grove City College where upon graduation he became a Certified Public Accountant (inactive). Smart Business Magazine recently recognized Charley as a Pacesetter honoree in recognition of Fiducia Group’s outstanding growth, leadership and contributions to the region.

of qualified and nonqualified retirement and benefits programs including ESOPs, defined benefit and defined contribution plans, cash balance programs, nonqualified deferred compensation plans, stock option and other equity participation programs, VEBAs and SERPs. John regularly consults with employers contributing to multi-employer pension and welfare plans with issues relating to transactions, bankruptcies, controlled group liability, and strategic planning for reducing and combating claims made for withdrawal liability for partial or complete withdrawals. He was the national president of one of the largest U.S. employee benefits professional organizations, the Worldwide Employee Benefits Network. John frequently speaks on various employee benefits topics and has been quoted and interviewed in numerous magazines and newspapers regionally and nationally. John has been recognized numerous times as a Best Lawyer and Super Lawyer in Employee Benefits and Executive Compensation.

with a variety of funding arrangements, group purchasing programs, and niche programs specific to his clients. He enjoys providing solutions specific to his clients’ needs and being an extension of their internal team. David received his Bachelor’s degree from Oswego State University and his MBA from Lemoyne College. He holds his Group Benefits Disability Specialist (GBDS) designation and is a graduate of the Leadership of Greater Syracuse program. David enjoys spending his free time with his wife and two boys.

Charley Kennedy

Note: The articles included in this publication are general information and are not intended as legal advice, nor should you consider them as such. You should not act upon this information without seeking professional consent.

E m p l oy e e B e n e f i t s

The RolandRoundup.

Roland is an Associate Analyst at Westminster Consulting, where he executes performance analysis, client projects and investment support for senior consultants. He brings research knowledge, industry trends and a commitment to client success to the Westminster team.

Prior to joining Westminster Consulting, Roland worked as a financial advisor at Morgan Stanley Wealth Management and as a staff accountant at St. Bonaventure University. He received an Associate of Science degree in business administration and a Bachelor of Science degree in psychology from Elmira College. He then received his MBA from St. Bonaventure University. Roland has earned his Series 7 and 66 licenses.

R o l a n d S a l m iW e s t m i n s t e r C o n s u lt i n g, L L C

The Roland Roundup is a compilation of court cases that have recently been in the news. Each case focuses on a violation of ERISA guidelines. The outcomes of these cases may have a lasting impact on the fiduciary environment.

August 1, 2018

Sacerdote et al. v. New York UniversityIn a lawsuit alleging imprudence in the management of two New York University (NYU) 403(b) plans, the university has emerged victorious. After careful review of the record, U.S. District Judge Katherine B. Forrest found that “while there were deficiencies in the Committee’s processes – including that several members displayed concerning lack of knowledge relevant to the Committee’s mandate – plaintiffs have not proven that the Committee acted imprudently or that the Plan suffered losses as a result.” Judge Forrest has dismissed all duty of loyalty claims against NYU and left only a few duty of prudence claims to move forward. (Pending resolution.)

Moore, Rebecca. “NYU Claims Victory in 403(b) Plans Lawsuit | PLANSPONSOR.” PLANSPONSOR, Strategic Insight Inc., 1 Aug. 2018, www.plansponsor.com/nyu-claims-victory-403b-plans-lawsuit/.

August 20, 2018

Moreno et al. v. Deutsche Bank Americas Holding Corp. et al Deutsche Bank has agreed to pay $21.9 million to settle charges it benefited from including proprietary funds in its 401(k) plan. In sum, the underlying allegations were that Deutsche Bank and other defendants violated their fiduciary duties by offering in the company’s own 401(k) plan proprietary, high-cost investments that profited the bank. It is important to note even

though the bank has agreed to settle the charges, the Deutsche Bank defendants still deny all liability to the class representatives; deny all of the claims made in the action; deny all allegations of wrongdoing made in any of the complaints in this action; and deny that the class representatives, the plan, or any of the plan’s current or former participants suffered any losses. Defendants further maintain that they acted prudently and loyally at all times when acting in any fiduciary capacity with respect to the plan. (Resolved.)

Moore, Rebecca. “Analysis of Settlement Terms in Deutsche Bank ERISA Litigation | PLANSPONSOR.” PLANSPONSOR, Strategic Insight Inc., 24 Aug. 2018, www.plansponsor.com/analysis-settlement-

terms-deutsche-bank-erisa-litigation/.

August 24, 2018

Feinberg et al. v. T. Rowe Price et al A federal judge has moved forward a lawsuit on behalf of T. Rowe Price’s 401(k) plan and all similarly situated plan participants and beneficiaries, as well as all predecessor plans, accusing the firm of self-dealing and prohibited transactions. The original complaint notes that at the inception of the class period, the 401(k) plan exclusively held T. Rowe Price proprietary funds, and almost all of these were the expensive retail class versions of T. Rowe Price mutual funds. It accuses the plan trustees of breaching their fiduciary duties under the Employee Retirement Income Security Act by either failing to remedy their predecessors’

breaches, or, in a few cases of offering expensive retail class versions of proprietary mutual funds, waiting too long to act to shift into lower-cost versions of the funds. (Pending resolution.)

Moore, Rebecca. “Court Finds All Claims Plausible in T. Rowe Price Self-Dealing Suit | PLANSPONSOR.” PLANSPONSOR, Strategic Insight Inc., 24 Aug. 2018, www.plansponsor.com/

court-finds-claims-plausible-t-rowe-price-self-dealing-suit/.

August 27, 2018

SEC Announces charges against four Transamerica entitiesThe Securities and Exchange Commission announced charges against four Transamerica entities for misconduct involving faulty investment models and ordered the entities to refund $97 million to misled retail investors. According to the SEC’s order, investors put billions of dollars into mutual funds and strategies using the faulty models developed by investment adviser AEGON USA Investment Management LLC (AUIM). AUIM, its affiliated investment advisers Transamerica Asset Management Inc. (TAM) and Transamerica Financial Advisors Inc., and its affiliated broker-dealer Transamerica Capital Inc., claimed that investment decisions would be based on AUIM’s quantitative models. The SEC’s order finds that the models, which were developed solely by an inexperienced, junior AUIM analyst, contained numerous errors, and did not work as promised. The SEC found that when AUIM and TAM learned about the errors, they stopped using the models without telling investors or disclosing the errors. “Investors were repeatedly misled about the quantitative models being used to manage their investments, which subjected them to significant hidden risks and deprived them of the ability to make informed investment decisions,” said C. Dabney O’Riordan, Co-Chief of the SEC Enforcement Division’s Asset Management Unit. Without admitting or denying the SEC’s findings, the four Transamerica entities agreed to settle the SEC’s charges and pay nearly $53.3 million in disgorgement, $8 million in interest, and a $36.3 million penalty, and will create and administer a fair fund to distribute the entire

$97.6 million to affected investors. (Resolved.)

“Transamerica Entities to Pay $97 Million to Investors Relating to Errors in Quantitative Investment Models.” SEC Emblem, 27 Aug. 2018, www.sec.gov/news/press-release/2018-167.

September 14, 2018

Habib et al v. M&T Bank Corporation et alA federal district court has removed some fiduciaries but moved forward claims against the M&T Bank 401(k) plan committee in a suit alleging that M&T Bank and its retirement plan’s fiduciaries engaged in self-dealing at the expense of the bank’s employees. According to the

plaintiffs, had the defendants conducted an impartial review of the Wilmington Funds, they would have discovered that the Wilmington Funds “was consistently one of the worst performing mutual fund families in the United States,” and that their “expenses were above average compared to many alternatives within the marketplace that had a superior performance history.” (Pending resolution.)

Moore, Rebecca. “Judge Moves Forward Some Claims in M&T Bank Proprietary Funds Suit | PLANSPONSOR.” PLANSPONSOR, Strategic Insight Inc., 14 Sept. 2018, www.plansponsor.com/judge-moves-forward-claims-mt-bank-proprietary-funds-suit/.

September 18, 2018

Reidt et al. v. Frontier Communications Corp. et al.The Defined Contribution Trust of Frontier Communications was 219-times more concentrated in Verizon stock than defendants felt was appropriate for the pension plan, for which the company bore the investment risk, plaintiffs allege in a new stock drop lawsuit. The lead plaintiff is seeking class certification for similarly situated Frontier Communications 401(k) Savings Plan participants in a new Employee Retirement Income Security Act stock drop lawsuit filed in the U.S. District Court for the District of Connecticut. This action “concerns the plan’s excessive concentration in Verizon stock.” By way of background, starting in July 2010, Frontier began acquiring significant capital assets of Verizon – starting with wireline operations providing services to residential, commercial and wholesale communications customers. Subsequently, Frontier has purchased broadband and fiber optic assets in certain Western states. According to the complaint, between July 2010 and December 30, 2011, the Frontier Communications 401(k) plan received and retained approximately $150 million in Verizon stock, at that time representing over 15% of the plan’s total assets. In April 2016, Frontier acquired additional Verizon assets, and the plan fiduciary defendants allegedly invested over $200 million of additional plan assets in Verizon stock. The lead plaintiff suggests the failure of the plan’s fiduciaries to timely liquidate the significant holding in Verizon common stock, and the decision to concentrate plan investments in Verizon common stock, breached their “fiduciary duty under ERISA to diversify the investments of the plan so as to minimize the risk of large losses.” The plaintiff further alleges the decisions of plan fiduciaries “violate ERISA’s prudence and loyalty requirements under 29 U.S.C. 1104(a)(1)(A) and (B).” As a result of these breaches, plaintiff alleges, defendants caused the plan and the proposed class to suffer more than $100 million in losses. (Pending resolution.)

Manganaro, John. “Frontier Communications Stock Drop Lawsuit Alleges Imprudent Telecom Concentration | PLANSPONSOR.” PLANSPONSOR, Strategic Insight Inc., 18 Sept. 2018, www.plansponsor.com/frontier-communications-stock-drop-lawsuit-alleges-imprudent-telecom-concentration/.


10 Fall 2018 Confero 11

By John M. Wirtshafter, Esq.


w o u l d y o u b e a b l e t o p r o v i d e t h e n e c e s s a r y d o c u m e n t s ?

If the answer is “no” or “I’m not sure,”

you should consider using a WRAP Plan.

If an employee walked into the human resources department of your company and asked for a copy of your company’s dental plan or for a copy of the

medical plan’s summary plan description, would you be able to provide her with one? What if you received an audit letter from the Department of Labor asking you for copies of your plan documents and summary plan descriptions for your company’s medical, dental, vision, group life or other plans? Would you be able to provide the necessary documents? When I ask companies these types of questions, too often the answer is “no” or “I’m not sure.” If any of this potentially applies to your company, you should consider using a Wrap Plan.

Now, it’s possible a few of you reading this article are anticipating it will provide you with helpful tips on gift giving for the coming holiday season. If so, I’m sorry to disappoint you. A Wrap Plan is a document/strategy that companies can use to better ensure they’re in compliance with the Employee Retirement Income Security Act of 1974 (ERISA) and to reduce their potential exposure relating to, and costs involved in, the administration of the various health and welfare benefit plans they provide to their employees. As such, for those who can take advantage of a Wrap Plan, I suppose it could be considered a gift.

What is a Wrap Plan?

For the most part, and with few exceptions, employer-sponsored medical, dental, vision, prescription drug, accidental death and dismemberment, cafeteria, employee assistance programs, short-term and long-term disability insurance, group term life insurance, and certain other employee welfare benefits are covered under ERISA as “employee welfare benefit plans.” With respect to each employee welfare benefit plan, in addition to certain claims procedures, governance rules and fiduciary and administrative responsibilities, ERISA imposes reporting and disclosure obligations on the employer that sponsors such plan.

These requirements include the obligation to have a written plan document specifying the terms of the program and containing certain required language and provisions; the requirement, unless otherwise exempted, to file annual returns with the IRS; and the obligation to provide participants and beneficiaries in such plan with a “summary plan description,” again containing certain specified information and provisions and explaining the significant terms of the plan in generally understandable language.

ERISA also provides certain uniform rules and protections employers can implement and rely upon to help them in the administration of such plans to their benefit. These requirements are complicated, and the simple fact is many employee welfare benefit plans, particularly those sponsored by smaller or middle market companies, are not in full compliance with the requirements imposed under ERISA.

A w r a p p l a n i s a d o c u M e n t / s t r at e g y t h at c o m p a n i e s u s e t o b e t t e r e n s u r e t h e y ’ r e I n c o m p l i a n c e w i t h t h e E M p l o y e e R e t i r e m e n t I n c o m e S e c u r i t y A c t o f 1 9 7 4 . ”

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under ERISA. A properly designed Wrap Plan acts to combine or “wrap” all of the various welfare benefit programs offered by an employer, which on their own would each be separate, individual ERISA employee welfare benefit plans, into one consolidated plan document. The consolidated plan document incorporates the various booklets and pamphlets describing the various programs into the Wrap Plan and supplements such material with the helpful and necessary provisions required by ERISA. By doing so, the Wrap Plan ensures that each of the underlying programs are in compliance with ERISA.

Why would an employer want/need a Wrap Plan?

As mentioned above, many employers have not fully complied with the written plan document and summary plan description requirements for each of their employee welfare benefit plans. New participants are supposed to receive a copy of the plan’s summary plan description within 90 days of them becoming eligible to participate in such a plan.

Participants and beneficiaries may also request a copy of the plan documents (at a reasonable fee) or summary plan descriptions at any time. Updates to the summary plan description, either in the form of a restated summary plan description or a summary of material modifications, are required to be provided to participants and beneficiaries by no later than 210 days following the end of the plan fiscal year in which such modifications were enacted. Failing to meet the requirement to provide a copy of the plan document or the summary plan description of the employee welfare benefit plan upon request or as required under ERISA can be very costly.

If the summary plan description does not contain the required provision to meet the requirements of ERISA or an employer fails to provide a participant or beneficiary with the summary plan description or plan document within a reasonable period of time following a request for such, a court can impose civil penalties against the employer of up to $114 per day for each failure. Imagine the total potential penalty if the employer failed to meet such requirement for five plans or with respect to 200 of its participants?

Furthermore, employee welfare benefit plans that are “funded” or cover more than 100 participants are required to file an IRS Form 5500 annual report each year. Failure to timely file a Form 5500 can result in the imposition of penalties of as high as $2,140 per day for each day that the applicable return is late. Thus, if a company failed to file a required Form 5500 for one of its plans for a full year, the maximum penalty could be as high as $781,100. Now, imagine if the company had five or 10 such plans or the company failed to file the return for five or 10 years? Again, the potential penalty is staggering.

Fortunately, if the company discovers the problem, rather than the IRS or Department of Labor, there are usually relatively affordable correction programs available to correct the noncompliance. However, if the IRS or Department of Labor starts looking for them, some of these options are unavailable and it may be too late to avoid significant penalties and costs. Therefore, it makes a lot of sense for companies to examine their own practices and address these types of issues now.

Unfortunately, many employers don’t create individual plan documents and summary plan descriptions for each of their employee welfare benefit plans. Instead, they rely upon pamphlets or booklets created by their insurance company or benefit provider describing the various terms of the program, or they treat the actual insurance contract as the plan’s document and summary plan description. These insurance and service provider documents are generally drafted to protect the interests of the insurance company and/or benefits provider. However, they often don’t provide the company with the maximum amount of flexibility to administer the program afforded under ERISA and rarely contain all of the language and provisions required to be included in a plan document or summary plan description under ERISA. These failures can be costly.

A Wrap Plan is a written plan document drafted to meet these ERISA-imposed requirements and take advantage of the protections afforded an employer

T h e s e F a i l u r e s c a n b e C o s t ly. ”

“


How can a Wrap Plan help?

By combining all of its welfare benefit programs into one plan, an employer accomplishes several objectives. First, it ensures all of the employee welfare benefit plans are in writing and contain the appropriate provisions required by ERISA. It also better ensures each program has a compliant summary plan description. Besides these benefits, a properly drafted Wrap Plan provides the advantage of some of the protections afforded by ERISA. Lastly, utilizing a Wrap Plan consolidates the number of employee welfare benefit plans offered by the company to one plan. This reduces the number of annual reports required to be filed by the company for its welfare plans to only one annual report (IRS Form 5500); thus, saving the company the time and cost of preparing multiple Form 5500s.

Still not convinced? Consider the possibility that using a WRAP Plan could increase the value of your company in a future transaction. I spend a good portion of my time serving as employee benefit and executive compensation counsel for companies that are buying other companies. One of the first steps we take when we get involved in a merger and acquisition transaction on behalf of a buyer is to perform due diligence on the employee benefit, severance, equity, and other incentive compensation programs and obligations provided by the target company.

Due diligence helps a buyer better understand the value and scope of these various programs, how they compare to the programs offered by buyer to its employees, transitional changes and opportunities, how the ongoing culture (of the combined entity) will be impacted by the transaction. This type of analysis is required for a buyer to understand for financial analysis, cultural fit, and a number of other important reasons. Unless these costs and issues are properly assessed and considered, the buyer may not be able to determine the true value of the target, determine the impact the transaction

may have on the employees of the target or the employees of the acquirer, or get an accurate understanding of the expenses and profitability of the ongoing business following the completion of the transaction.

Thus, among many other requests, we ask the target company to answer the types of questions posed at the beginning of this article: Do you have written plan documents and summary plan descriptions for each of your plans? Can you provide us with IRS Form 5500s for each plan? Unfortunately, too often the responses we receive indicate the target company has failed to comply with all of these ERISA requirements.

As noted above, some of these risks can be substantial, and since a seller is usually required to provide various representations and warranties and to provide indemnification for such noncompliance, this can ultimately result in reduction in the proceeds received by the seller. Furthermore, if we discover significant noncompliance in meeting the requirements of ERISA or the Internal Revenue Code, it suggests there may be other important legal compliance risks and exposures. The fact is that target companies demonstrating a culture of legal compliance will be valued more highly by a buyer and will be able to negotiate preferential transaction terms than a similar company demonstrating more of a laissez-faire attitude towards legal compliance.

Does this sound at all like your company? If it does, you should review your compliance with these ERISA requirements and consider utilizing a Wrap Plan.

John M. Wirtshafter is a Member of McDonald Hopkins LLC, a corporate law firm with offices in Cleveland, Chicago, Detroit, Columbus, West Palm Beach and Miami. His practice focuses include executive compensation and governance, employee benefits and ERISA, and taxation. He can be reached at (216) 348-5833 or at [email protected].


E m b r a c i n g Y o u r E m p l o y e eB e n e f i t s R e n e w a l S e a s o nBy David Spiegel

To many of us, the fall means a change in seasons that brings football, children heading back to school, cooler weather, and pumpkin-flavored everything. However, for many employers, the fall is the time of the year that group

medical insurance renewals are reluctantly received with the expectation of another premium increase. Internal discussions begin, and questions such as “How bad are we getting hit this year?” and “How can we contain costs?” arise. Health insurance is viewed by many groups as an inevitable requirement to attract and retain employees, and, let’s face it, managing cost with what a multigenerational workforce expects is not an easy task. The purpose of this article is to provide a few considerations to spark internal conversation and get back in control of your insurance program.

If you are considering making any changes to your program, the first step is crucial and often overlooked: Find out what is most important to your employees. The best way to get


this information, try asking them! Just be prepared that there can be expectations that certain benefits will be offered if they are brought up in a survey. Benchmarking data can be provided to show how you stack up versus your competition, but keep in mind what might be important to a competitor might not be what is important to your most valued asset. Millennials are now the largest generation in the workforce, and what is important to them is very different from what Gen X and Baby Boomers value. For example, time off and flexibility of work hours might be more important than what you have in mind for your staff. Before leadership can put in place a long-term strategy, identifying what is most important to your workforce should be reviewed. Are your employees motivated by cost or the desire for a comprehensive plan? Identify what is important to your employees to make sure that any changes made will be the ones with the greatest impact.

If changes to your benefits program are being considered, this does not always mean additional costs. For example, wellness programs can often be introduced for free or at a minimal cost. In fact, many studies report a return on investment of up to three to one if administered properly. Employers are embracing employee wellness now more than ever for many reasons, including cost savings through reduction in claims, fewer sick days, and increased worker productivity. A reduction in longevity and severity in workers compensation claims can even be tied to successful wellness programs. Regardless if your claims are connected to your medical renewal, discussing wellness goals should be on your list. Offering these types of programs can have a direct correlation between the well-being of your employees and the bottom line. Wellness programs can be administered internally, through an insurance carrier, or through a stand-alone wellness vendor. External

support will probably be needed to properly identify the goals, timeline, and metrics. The variety of programs available is endless and can be customized to your workforce as long as you keep in mind communication and setting incremental goals are important. Walk before you run, and having internal champions in all departments is crucial. Top-down support is also important to the success of the program. Have any of your employees asked you about a standing desk yet? If not, get ready.

Regardless of your company size, employee demographic, risk tolerance, or financials, there are cost-containment solutions available. Self-insurance is coming down market as a way to contain cost by removing some of the additional fees and revenue that is built into a fully insured plan. This may be a viable

solution for some, but do your research prior to determine what the true risks and rewards are for this type of arrangement. In a self-funded arrangement, you are the insurance carrier paying out claims, which can be unpredictable, especially if you are a smaller employer. Specialty medications are now outpacing medical trend and are expected to continue with the amount of new medications entering the market. Stop-loss is available to protect against an individual or group claim above a set threshold, but even when stop-loss is in place, a poor performing group can set itself up for worse returns compared to remaining fully insured. New trends growing in the self-funded arena include adding a domestic network, on-site physician, medical tourism, telemedicine, introduction of a new Rx tier, group purchasing PBM, and stop-loss solutions that provide deeper discounts, financially incentivizing

“Walk before you run, and having internal champions in all departments is crucial.”


consumerism, reference-based pricing, among many others. If you are considering self-funding, make sure you have done your due diligence prior to making the transition. If you are currently self-funded, make sure you are taking advantage of all of the new opportunities. There can be more flexibility and risk, but with this risk there can also be greater reward. You have to understand your risk tolerance to know if you have the characteristics for self-funding.

Health insurance captives are becoming a popular consideration for employers that are too small to self-fund on their own but want to take on additional risk to try to control costs for the long term. This is done by pooling together with other companies. Stop-loss is still in place, and the general idea is if you have a bad year in claims, the other members in the captive lessen the impact. However, these should be approached with caution, as there are multiple captive managers available, some being more profitable than others. These arrangements can vary significantly. For example, one captive might be formed for a specific industry and require certain criteria, such as a wellness program or pricing transparency,

whereas another could be much more loose with what is required to participate. Others have not performed as well, due to poor management and guidance. This type of arrangement should be approached with caution, but can still be viewed as a potential solution. There are other group purchasing programs that are fully insured that, if available, should be considered as a cost containment strategy. In any situation, certain criteria will need to be met in order to be eligible.

Alternative risk sharing arrangements may be one of the more overlooked or underutilized solutions to control costs for groups that do not have the size or risk tolerance to self-insure, but feel that they are overpaying at the 100% fully insured rate. Carriers typically offer a solution that is fully insured with a lower premium on the front end or a reimbursement on the back end, based on the group’s performance during the plan year. These types of arrangements can provide minimal additional risk while allowing additional savings that would otherwise not been realized. This can also be viewed as the first step to potential self-funding down the road and a way to test the waters without fully committing.

Reviewing the current plan design and contribution structure may be viewed as a “been there, done that” option, but should not be overlooked. In the spring issue of Confero, defined contribution was discussed in regards to executive compensation. Employers are now starting to mimic this with contribution structure for employees’ insurance. In this approach, employees can be classed out, which disconnects the employer from the renewal percentage, and allows employees to decide what plan is best for their needs, similar to the cafeteria model seen decades ago. Employers are now looking to offer benefits beyond the traditional offerings, and employees are expecting and embracing policies such as EAP’s and identity theft, legal, and pet insurance, among many others listed in this publication. Offering plans that support your medical insurance, such as a hospitalization program, are also being welcomed as ways to contain cost while still protecting your employee in case of high-cost claims.

With the amount of options available, partnering with external support is crucial to ensure you are maximizing your potential. Find someone who is an expert in the industry and utilize him/her for

everything s/he is worth. Your company should be focused on whatever service you provide, not on the ins and outs of insurance. Brokers and insurance carriers may appear to be all the same, but in reality provide very different service models, resources, and expertise. From my experience, the best advisors should constantly be bringing new solutions for your consideration and providing a long-term strategic approach. Try getting away from the standard transactional annual renewal meeting. When was the last time you interviewed alternative brokers? There may be an opportunity you are missing out on.

Before making any changes this renewal season, try to keep a few things in mind: What do our employees want? What are our company goals? What is the long-term strategy to put our company on the best path for success? There are almost always ways to contain costs, simplify administrative responsibilities, and improve the overall employee experience. Identifying a clear strategy and how to accomplish it is a good place to start. Make this renewal season a positive, strategic, and outcome-based approach that you can look forward to and celebrate. Enjoy the fall season, whether it’s with a regular cup of joe or a pumpkin-spiced latte.


Ta x T i p :

H S A C o n t r i b u t i o n s M ay E q u a l F at t e r N e s t E g g s

Many experts expect healthcare costs will

continue to rise, underscoring the importance

that

advisors help their clients plan ahead. One

increasingly popular method is the health

savings accounts (HSA), an investment account

that allows the proceeds to be distributed for

medical expenses, tax free.

Since the inception of HSAs, enrollment in HSA-

eligible health plans has grown, to about 17

million policyholders and their dependents, and

nearly four out of five HSAs have been opened

since the beginning of 2011, according to the

National Association of Plan Advisors. Meantime,

a Devenir Research study shows that total HSA

assets have soared, from $1.7 billion in 2006 to

more than $45 billion in 2017, and the rate of

growth is expected to accelerate through 2019.

(See Chart 1.)

Health Savings Accounts have the potential to provide a triple tax advantage.

By Brian Dobbis, QKA, QPA, QPFC, TGPC Lord Abbett

Source: Estimates derived from 2017 year-end Devenir HSA Market Survey, press releases, previous market research and market growth rates. Market forecasts and projections are based on current market conditions and are subject to change without notice. Projections should not be considered a guarantee.


From Here To LongevityBetween rising healthcare costs and insurance

premiums and greater longevity, it’s easy to see why

more people are funding HSAs and more employers

are offering them. According to Fidelity’s Heath Care

Cost Estimate, a 65-year-old couple who retired in 2017

will need $275,000 (in today’s dollars) to cover just

healthcare costs in their golden years—nearly 5.8%

more than the previous year’s estimate of $260,000.

That’s the highest estimate since such projections

started in 2002.

An HSA offers an opportunity to pay medical expenses

in retirement tax free. Distributions can be made at

any time (unlike flexible spending accounts, which

follow “use it or lose it” distribution rules), which, with

smart planning, offers a younger individual to fund his

or her HSA today and let the account grow without

distributing any proceeds until later in life, potentially

as late as retirement.

HSA eligibility is a mixed bag. For example, there is

no requirement to have earned income to contribute

to fund an HSA. Further, there is no income test to

satisfy: contributions are fully tax deductible. However,

eligibility requires an individual to be enrolled in

a high deductible health plan or HDHP. Additional

eligibility requirements include that an individual is

not enrolled in Medicare and who cannot be claimed

as a dependent on someone else’s tax return.

Note: This is not an exhaustive list. For a complete

overview of eligibility, see IRS Publication 969, Health

Savings Accounts and Other Tax-Favored Health Plans.

Be sure to consult with your tax professional and confirm

that your plan is qualified as an HDHP.

HSAs are distinctive compared with their tax-

advantaged account counterparts (e.g., IRAs,

qualified plans, etc.). As Nevin Adams, chief of

marketing and communications for the American

Retirement Association put it last year, “HSAs

provide their account owners a triple tax advantage:

contributions to an HSA reduce taxable income,

earnings on the assets in the HSA that build upvtax

free, and distributions from the HSA for qualified

expenses that are not subject to taxation.” HSAs

also can enable employers to lower premiums by

creating higher deductibles and increase “cost

sharing” with employees.

HSA owners receiving contributions pretax through

an employer, either employer contributions or

employee payroll deferral through a Section 125 plan,

also avoid FICA payroll taxes (e.g., Social Security and

Medicare). In other words, funding an HSA through

payroll can save an HSA holder 7.65% in payroll tax

(the employee’s half of the 15.3% payroll tax).

Of course, clients (and their spouses and dependents)

have medical costs throughout their lives.

So, if at all possible, it’s advisable to encourage

them to tap other funds, while their HSA grows.

Note that tax-free distributions are allowed for a

spouse even if he/she has medical coverage that

is not HSA eligible.

In 2018, the maximum funding limit for an HSA is $3,450

for an individual ($4,450 for those age 55-plus) and

$6,850 for family coverage ($7,850 for those age 55-

plus). The contribution deadline is the employee’s tax-

filing deadline, not including extensions. So, you still

have time to make a 2017 HSA contribution. For 2017,

the contribution limits are $3,400 (single coverage)

and $6,750 (family coverage), plus an additional $1000

catch up for the those individuals age 55 and older.

Each tax year that you have HSA coverage provides

you the opportunity to contribute to your HSA up to

your contribution limit. In addition, in the same vein

as IRAs, the IRS permits prior-year HSA contributions

in the following tax year. For any given tax year, you

can contribute normally to your account throughout

the year (January 1–December 31).

As previously mentioned, IRS rules allow eligible

taxpayers to make prior year contributions to their

health savings accounts. But if you’re doing that in the

following tax year, be sure to code it as a contribution

for the prior year with your HSA custodian. This is

because a contribution made in say, January, can be

T r i p l e P l ay E l i g i b i l i t y


used for either the current year or prior year. Your HSA

custodian needs to know how you handle this contribution

and to which tax year you want it to count.

The deadline for this prior-year contribution is the day

your taxes are due, generally April 15. You can make

contributions to your HSA for 2017 until April 17, 2018.

Tip: An individual does not need to remain an eligible

individual to make a prior-year contribution. For example,

your HSA-eligible insurance can end, but you can still wait

until the following year to make prior-year contributions.

Generally, distributions from an HSA to pay for medical

expenses are tax and penalty free. Qualified expenses

include most medical, dental, vision care, and medications

prescribed by a doctor. On the other hand, nonqualified

distributions (i.e., those not used for medical expenses)

are taxable and subject to a 20% penalty (not the usual

10% penalty associated with most retirement accounts).

Interestingly enough, though, in the case of distributions

taken after age 65 (not 591/2), the 20% penalty is waived

(though nonqualified distributions are still taxable for those

older than 65). With regard to a qualified distribution, the

penalty also is waived for disability or, if withdrawn as a

non-spouse beneficiary, after the passing of the HSA owner.

HSAs also offer a little known benefit (in coordination with

your IRA): An individual once (in his or her lifetime) can

transfer the proceeds from an IRA (not 401(k), 403(b) or

qualified plans) to his or her HSA—up to the contribution

amount allowed for the year. This transfer is known as a

qualified HSA distribution (QHFD). However, it would be

permissible to roll over a 401(k) or other retirement plan

from a former employer to an IRA and, subsequently,

transfer the assets to an HSA. The transfer is permitted from

an individual’s IRA in which he/she is the account owner

or from an inherited IRA in which he/she is the named

beneficiary. The rollover amount cannot be more than the

annual HSA contribution limit minus any contributions that

are made for the year.

Why would someone transfer his/her IRA assets to an HSA?

One benefit would be to augment his/her HSA savings in the

event of an immediate, urgent, and potentially expensive

medical procedure. Another strategy involves moving all

one’s pretax “taxable dollars” to an HSA, leaving behind

only aftertax dollars, which subsequently can be moved/

converted to a Roth IRA reducing or potentially eliminating

the tax burden.

Tip: Basis is not permitted to be transferred from an

IRA to an HSA. Also keep in mind:

• A transfer can only occur once per lifetime.

• The transfer amount is determined by the

contribution limit for the individual in the year

of transfer.

• IRA proceeds must be moved as a direct transfer.

A 60-day rollover is not permitted.

• Eligible IRAs include traditional, Roth, SEP, or SIMPLE.

However, the SEP or SIMPLE must be inactive.

• Distributions are not subject to the “pro-

rata” rule. In other words, an individual is not

permitted to move aftertax dollars; only pretax

dollars are allowed to transfer.

• A QHFD also applies to inherited IRAs.

• Be sure to engage a tax professional, as there is

no special 1099-R coding to report the transfer

as a QHFD.

• An individual must remain HSA eligible for a

one-year period after a QHFD to avoid taxes

and penalties.

If you have any questions about this or another

retirement topic, please e-mail me at roadtoretirement@

lordabbett.com.

To comply with Treasury Department regulations, we inform you at,

unless otherwise expressly indicated, any tax information contained

herein is not intended or written to be used, and cannot be used, for

the purpose of (i) avoiding penalties that may be imposed under the

Internal Revenue Code or any other applicable tax law, or (ii) promoting,

marketing, or recommending to another party any transaction,

arrangement, or other matter.

The information is being provided for general educational purposes only

and is not intended to provide legal or tax advice. You should consult your

own legal or tax advisor for guidance on regulatory compliance matters.

Any examples provided are for informational purposes only and are not

intended to be reflective of actual results and are not indicative of any

particular client situation.

The information provided is not directed at any investor or category

of investors and is provided solely as general information about Lord

Abbett’s products and services and to otherwise provide general

investment education. None of the information provided should be

regarded as a suggestion to engage in or refrain from any investment-

related course of action as neither Lord Abbett nor its affiliates are

undertaking to provide impartial investment advice, act as an impartial

adviser, or give advice in a fiduciary capacity. If you are an individual

retirement investor, contact your financial advisor or other fiduciary about

whether any given investment idea, strategy, product or service may be

appropriate for your circumstances.


Designing Employee Benefits to Address Educational Debt Assisting Employees Reduce Educational Debt Through Employer-Provided

Student Loan Repayment and Educational Assistance Programs

It has been widely reported that student loan debt is at an all-time high, which in turn causes many workers financial stress and influences their decisions to delay family planning and home

purchases. In addition, educational debt is often cited as a major reason why individuals are unable to save any additional compensation for retirement as well as meet their many immediate expenses. However, not only is educational debt an issue for young workers entering the workforce, but also it will become increasingly more prevalent as a financial stressor as more workers find themselves in the position of re-skilling for future jobs as a result of increasing automation and artificial intelligence in the workplace. With renewed attention to these issues, and overall financial wellness initiatives, student loan repayment and educational assistance programs have been garnering increased interest as employers consider new ways to expand their employee benefit programs in a manner that will provide meaningful benefits to workers.

By Michelle Capezza, Esq.Michelle Capezza is an employee benefits and executive compensation

attorney and a Member of EpsteinBeckerGreen, resident in their New York

office. She can be reached at [email protected] and 212-351-4774.


Employers that desire offering a student loan repayment program or educational assistance program to their employees should consider the following:

1Taxable Student Loan Repayment Benefits

To date, a small percentage of private-sector employers offer student loan repayment assistance for expenses incurred prior to employment, which

is taxable and includible in wages under current law. However, interest in these types of programs is growing. There is no required design for this type of program, but some studies show that a typical payment offered may be $100 per month toward the principal balance of a student loan. There have been legislative proposals to exclude from gross income the amounts paid by an employer under student loan repayment assistance programs, but to date they have not moved forward (see e.g., the Student Loan Employment Benefits Act of 2016 (to exclude up to $5,000 per year from income) and the Student Loan Repayment Assistance Act of 2015 (to exclude up to $6,000 from income)).

Despite the current inclusion of this type of benefit in income, employees may still find this

extra monthly payment attractive to assist in the repayment of their monthly student loan bills. Also, it provides increased wages without adjusting base salary per se because the income is specifically attributable to the student loan repayment program. Employers interested in offering this type of program have latitude in their design and should consider how they wish to define eligibility, the types of education and loans that qualify for repayment assistance, amount of the repayment, communications, and administrative issues and coordination with other financial wellness programs, including service providers in this space that can integrate and facilitate employer payments to the educational institutions.

2Potential Coordination of Student Loan Repayment with Retirement Plan Savings

There has been interest in finding a way to coordinate

student loan repayments with employer contributions to defined contribution plans, such as the 401(k) plan, in order to avoid the immediate inclusion of such contributions in income. Obvious hurdles have included

requirements to pass nondiscrimination and coverage tests for these plans and overall maintenance of qualified plan status. A recent private letter ruling has fueled renewed interest in the retirement plan integration approach.

In Private Letter Ruling 201833012, the IRS ruled that a 401(k) plan design allowing an employer to make a nonelective contribution for an eligible employee who makes a student loan payment under the program would not violate the contingent benefit rule under the tax code. These employees could also still make elective deferrals to the plan, but they would not be eligible for regular matching contributions; they would be eligible for the nonelective contribution and a true-up match. The employer also represented that it would not extend any student loans to employees eligible for the program. Notably, however, the ruling did not express an opinion on the federal tax consequences of any aspect of the issues referenced in the letter, and no opinion whether the plan satisfies the qualified plan requirements under the code.

This ruling has garnered widespread interest and more developments on this front are anticipated.

Employers interested in exploring similar plan design options should consider obtaining their own private letter ruling since such rulings may only be relied on by the applicant. Further, the approach should be vetted with service providers that conduct applicable testing for the plan to project passage of such tests. A request for a determination letter as to the qualified status of individually designed plans with such a feature would also be prudent, pending the IRS’ status of such review programs or acceptance by the IRS for review of the plan as a new approach to plan design. Employers should also monitor future legislation that could potentially amend the tax code and provide a means for such integrated programs.


3Qualified Educational Assistance Programs

Under tax code Section 127, employers can offer employees educational assistance tax-free up to $5,250 per calendar year

pursuant to a written program. The assistance can include reimbursement for tuition, fees and books as well as for graduate-level courses. The program must also pass applicable nondiscrimination tests. Employers can design their programs to reimburse the employee for qualified expenses, directly make payment to the educational institution, and/or the employer can provide the education to the employee. The educational assistance does not necessarily have to be work-related under these programs, but it cannot be for a sport, game or hobby unless reasonably related to the employer’s business or required as part of a degree program.

These programs do not address existing student debt incurred prior to the time of employment with the employer. It will be important to monitor legislative proposals in this regard that could serve to address extension of these types of programs to existing loans. There have been legislative proposals to increase the amount of tax-free tuition assistance, which to date have not moved forward (see e.g., the Upward Mobility Enhancement Act of 2017 (to exclude up to $11,500 of tuition assistance per calendar year)).

4Working Condition Fringe Benefits

Under tax code Section 132, working condition fringe benefits, which are property or services to an employee

that an employee could otherwise have deducted from income, are not included in gross income. These may include educational costs that maintain or improve required skills or are a condition to maintain a particular job as defined under tax code Section 162 and regulations thereunder. Expenses to meet minimum educational requirements of the individual’s current business or as part of a program to qualify the individual for a new business would not qualify. Employers that can provide educational benefits that meet these tax code requirements may be able to provide such benefits on a tax-free basis.

Employers should carefully consider working condition fringe benefits as they introduce automation and artificial intelligence into the workplace. As it becomes increasingly more important for certain employees to re-skill and re-tool to work alongside machines, employer provision of the requisite education to perform these new jobs may qualify as a working condition fringe benefit.

Certainly, employees will find programs related to student loan repayment or educational assistance attractive and beneficial. Employers interested in offering these types of benefits should consider the available approaches under current law, communicate programs in a meaningful way, and monitor ongoing developments as new methods emerge in this trending area.

“Employees will find programs related to student loan repayment or educational assistance attractive and beneficial.”


P r e s c r i p t i o nB e n e f i t s M a n a g e m e n tBy Michael Miele, FSA, MAAA

A KINDRED SPIRIT To THE 401(K) INDuSTRY


F o r t h e Pa s t 1 0 Y e a r s ,retirement consultants have been leading the charge to drive more transparency (and lower fees) for employees participating in 401(k) plans. This article will give you a brief overview of the prescription benefits arena and will draw parallels to the retirement industry.

Here are two simple questions you should ask as a plan administrator/fiduciary:

1) How much does your prescription benefits manager (PBM) make? 2) How much does your advisor make?

When I started working in the PBM market as a consultant in the 1990s, PBMs processed prescriptions for an administrative fee of $1 per prescription. Since the average employee uses 10 prescriptions per year and another 15 for employees with family coverage, that was about $10 to $25 per employee per year. All PBMs at that time were “pass-through.” In other words, they were limited to that $1 per prescription for their total compensation. PBMs had contracts with pharmacies; there was little or no mail order, and there were no pharmaceutical manufacturer rebates. When there was a mail order facility, it was owned by a third party, and the PBM treated them as just another pharmacy. Whatever the PBM paid the pharmacy was billed back to the self-funded employer, plus $1 per prescription.

As PBMs developed their own mail-order facilities, they waived the $1 per prescription

fee and would agree to a deeper “discount” than the retail pharmacies. So what if the PBM is contracting with itself? In the pension world, it would be difficult for a “closely held” transaction like this to happen. Generally employers were OK with this, since the discounts in mail order were significantly larger than they were in a retail setting….. Or were they?

As PBMs got more entrenched in the pharmaceutical supply chain, they were able to extract greater discounts and rebates from the market as well as drive more efficiency in mail order versus the retail pharmacy setting. They also built in a margin for themselves. This margin allowed the PBM to waive the $1 administrative fee. PBM explicit fees were driven to zero. Did that mean the PBM was working for free? No. They moved to what is called “spread pricing.” The PBM does not pass all of its discounts and rebates to the customer and does not disclose the amount they make.

The PBM story should have been the “Amazon of the 1980s”. Amazon got more entrenched in the retail supply chain and, like the PBMs, they were able to get greater discounts out of their suppliers. Amazon drove prices down for consumers and, based on publicly available information, makes a very small margin for its efforts.

PBMs may or may not have driven down prices for the consumer. The average cost per prescription (brands, generics, specialty) after discounts rebates and coupons is around $100 per prescription. That’s up from around $30 per prescription 10 years ago. We don’t really have a “cash market” in pharmacy like we do in the Amazon example so we don’t know what costs “would have been.” To determine Amazon’s value to


the consumer, we can readily compare the company’s prices to other retailers’ prices. It’s not like Amazon controls 90% of the market (Like the PBM’s do). We can, however, use some publicly available internet sites and mobile apps to get a sense of some prices.

For example, a 30-day supply of Januvia (a diabetes drug) has an average wholesale price (AWP) of $457.20. After a PBM discount and a rebate from the manufacturer, the net price to the consumer with insurance coverage would be about $250 before any copays, deductibles or coinsurance. That same drug through various online sources is around $435 with a coupon. In this example, the PBM is extremely effective at driving savings.

Conversely, a 30-day supply of Humalog (another diabetes drug) has an AWP of $1,528. After discounts and rebates, the net price to the consumer is between $500 and $1,000 depending on the size of the rebate. Again, this is before any copays, deductibles or coinsurance. That same drug through various online sources is $177.87.

I could go on and on, as there are thousands of drugs on the market. Let’s just leave it as it is very hard to know what drug costs would have been if the PBM never existed.

So, let’s focus for a moment on how much PBMs make from themselves...

PBMs definitely make money for themselves. Based on publicly available information, PBMs gross between $15 and $20 per prescription – not bad for setting up an electronic claims adjudication platform. I would have thought that the original $1 per prescription cost would be even less today because of improvements in technology. PBMs do provide other services

such as account management, sales and marketing, clinical support, member services, analytics, and IT. After all of that, PBMs net between $5 and $6 in profit per prescription.

Since we don’t have an open market to compare to, employers select a PBM vendor through a competitive bidding process hoping to drive out more costs. Employers accomplish this by hiring a pharmacy benefits consultant to manage the bidding process. The PBM consultant either charges a fee that is paid directly by the employer, or what is happening more frequently is the winning PBM is required to pay the consulant’s fee, and those fees are built into the pricing. In other words, the employer still pays, but the fees are buried into the quote.

If I haven’t put you to sleep yet, this current situation is not unlike how the 401(k) industry was years ago. Plan administrators and their advisors asked some tough questions, and, as a result, the fees have dropped substantially.

As a plan administrator/fiduciary, you should be asking your PBM and your advisor to disclose how much their fees are, regardless of who pays for it. You may not like the answer!

Prescription Benefits Management is extremely effective at driving savings.”

“


T r u m p I s s u e sE x e c u t i v e o r d e rI m p a c t i n g R e t i r e m e n t P l a n sLEGISLATIoN oR PRoPoSED REGuLATIoNS FRoM THE DoL & IRS SooN To FoLLoW?

By Charley Kennedy

On August 31, 2018, President Donald Trump issued an executive order on “Strengthening Retirement Security in America.” The executive order is likely

setting the table for the Department of Labor (DOL) and the Department of the Treasury (IRS) to release proposed regulations in the not too distant future. The order asks the DOL and treasury department to consider changes geared toward encouraging the establishment of retirement plans by small and mid-size employers. Specifically, the executive order provides directives that would encourage smaller employers to offer retirement plans by participating in multiple employer plans (MEPs) and by simplifying the notice requirements (and the administrative burden associated with them) for employers sponsoring workplace retirement plans. It also suggests easing the required minimum distributions at age 70.5.

First, let’s take a glance at MEPs. A MEP is a single retirement plan that covers multiple employers that are not within the same controlled group. Expanding the availability of MEPs could potentially reduce costs and burdens for small and mid-size companies by allowing them to sign onto a plan that includes common recordkeeping, administration, and investment arrangements. Under the DOL’s current guidance, employers must have some form of relationship with one another, such as a degree of common ownership or historical associations, in order to participate in a common MEP. It is unclear whether the DOL and IRS have statutory leeway to allow “open MEPs” for unrelated employers under the applicable statutory language, but numerous bills in Congress could allow for open MEPs under some conditions.


The participant notification simplification efforts would seem to indicate that the IRS and DOL are both reviewing their current requirements to find ways to make notices less burdensome, both in content and delivery. One of the potential changes would

be to liberalize the rules for providing notices electronically to participants. Present rules generally limit the use of email and other electronic disclosures to those employees who are able to access the disclosure materials electronically at work or who have specifically opted into electronic disclosures.

The collective effectiveness of the executive order to encourage new plan formation and cover more American workers certainly depends on the structure of tax incentives, but an “open MEP” concept could prove to be a great long-term solution for smaller employers and their participants. Many small employers shun plan formation due to cost, fiduciary, and administrative burdens. Furthermore, those who do start plans often place the cost on participants through the use of high-priced investment vehicles to compensate service providers and investment advisors. Fee

structures for small-employer retirement plans are usually much higher for participants than their counterparts with larger employers. Open MEPs, if structured properly, could provide economies of scale and will be supported by retirement-centric fee-based advisors who will work to deliver high-quality, cost-effective programs similar to those maintained by larger employers.

Naturally, the executive order has generated substantial press attention, but what does it mean? What the executive order likely indicates is that the initiatives captured within the order have been under review for some time by the executive agencies. The executive branch may also consider working with Congress to move desired policies forward, as both the House and the Senate have introduced bipartisan legislation with similar intent to the executive order.

On September 10th, House Ways and Means Committee Chairman Kevin Brady released the details of his “tax reform 2.0” legislation, and it includes significant changes to retirement savings options, including the enhancement of MEPs. The package consists of three bills that seek to build on the Tax Cuts and Jobs Act by making certain individual and small business tax cuts permanent, simplifying existing rules to make it easier to save for retirement, and promoting new business innovation. One of the bills, H.R. 6757, mirrors the themes included in the bipartisan Retirement Enhancement and Savings Act (RESA) that was introduced this past spring. RESA includes several provisions that, taken together, will make it easier for small businesses to adopt and maintain a workplace retirement plan.

The bottom line is that the remainder of 2018 and 2019 are likely to provide some meaningful changes for current retirement plan sponsors (and potential new sponsors) to chew on moving forward. Where there is smoke, there is fire, and there’s plenty of smoke in Congress and the executive branch surrounding the retirement security of Americans. Stay tuned.

The remainder of 2018 and 2019 are likely to provide some meaningful changes for current retirement plan sponsors...”

“

M e e t F i d u c i a G r o u p

Fiducia Group provides unbiased advice and fiduciary expertise for employer-sponsored retirement plans. Our support and guidance

helps plan participants achieve retirement readiness. Our tested process also makes plan sponsors’ lives easier by saving them time and lead to high quality, cost effective and compliant retirement plans.

Fiducia Group couples extensive experience with a singular focus on serving employer-sponsored retirement plans. Retirement plans require a higher level of expertise and focus from an advisor. Sponsors have and enormous responsibility of managing someone else’s money and can greatly influence their standard of living in their retirement years. A retirement plan advisor should not be just another vendor relationship, judged on fees and personality. You need and deserve an expert.

Focused AdviceFiducia Group’s core business, our only business, is helping retirement plan sponsors manage their plans. We are retirement plan specialists, it’s what we do... it’s all we do.• 100% of our revenues come from assisting

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• Each of our consultants is an owner of the firm and is committed to our

• clients and the retirement industry.

Traditional ValuesWe focus on personal relationships with our clients, built upon trust and integrity. • We care about retirement plan participants

and their success.• We care about our clients and the challenges

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active role in improving our profession and the regulations of workplace retirement plans.

At Fiducia Group, we provide seasoned expertise and insight in helping investment fiduciaries better manage their legal responsibilities through considered advice, secure technology, and on-going fiduciary education.

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Fiducia Group...Celebrating 10 Years

Fiducia Group is celebrating its 10th anniversary of providing investment andfiduciary advice to sponsors of workplace retirement plans. We are very experienced retirement plan specialists, it’s what we do... it’s all we do. Our firm was founded with a core philosophy of traditional values: personal relationshipswith our clients, built upon trust and integrity. These values have served us well.

In addition to servicing our clients’ needs, we also understand the importance ofgiving back to our community. At Fiducia Group, we have and will continue tocontribute both time and resources in supporting various charitable and faith-based organizations throughout the Pittsburgh region.

We eagerly look forward to what the next ten years may bring. As Fiducia Groupcontinues to grow, we will evolve with changes in the marketplace and theretirement landscape so that we can continue to best service our clients' needs.

Thank you to all of our clients, service partners, friends and family whohave been a part of our journey!


M a g a z i n e

C o n f e r o

100 W Station Square Drive, Suite 615

Pittsburgh, PA 15219

Phone: 412.540.2300

fiduciaretirement.com/Publications/Confero

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Documents

issue 24, Fall 2018 Conferoweb).pdf · 2 Fall 2018 Confero 3content Tax Tip: HSA Contributions May Equal Fatter Nest Eggs 24 Designing Employee Benefits to Address Educational Debt