Benefits

1. Benefits Chapters 13

2. What Benefits Must Employers Provide? • Employers are required by federal law to make contributions for their employees to: • Social security • Unemployment insurance • Workers compensation • Some states & cities have attempted to pass laws requiring contributions to health insurance. • But generally, there is no requirement that an employer offer benefits of any kind. • If an employer voluntarily offers benefits, it must comply with the Employees Retirement Income Security Act (ERISA).

3. SOCIAL SECURITY • The Social Security Program was created in 1935 (42 U.S.C. 301 et seq.) to provide old age, survivors, and disability insurance benefits to workers and their families. • Unlike welfare, social security benefits are paid to an individual or his or her family at least in part on the basis of that person's employment record and prior contributions to the system.

4. SOCIAL SECURITY • The program is administered by the Social Security Administration (SSA) • Since 1965 it has included health insurance benefits under the Medicare program • The Federal Old Age, Survivors, and Disability Insurance (OASDI) pays out monthly benefits to retired people, to families whose wage earner has died, and to workers unemployed due to sickness or accident.

5. SOCIAL SECURITY • Workers qualify for its protection by having been employed for a minimum amount of time and by having made contributions to the program.  • Once an individual has qualified for protection, certain other family members are, as well.  Financial need is not a requirement.

6. SOCIAL SECURITY Contributions to the Program • Workers pay the tax as they earn their incomes. This system is known as "pay-as-you-go" or "pay-as-you-earn." Workers' payroll taxes support those who are currently receiving Social Security benefits. • The Social Security (full FICA) rate withholding is 7.65% (6.2% Social Security plus 1.45% Medicare) for wages up to $106,800 in 2009 and 2010. All wages over $106,800 are subject only to the 1.45% Medicare rate. • The rate remains at 1.45% for those who are subject only to Medicare. The Medicare wage base has not had a dollar limit for any year after 1993.

7. Social Security Benefits • To determine your benefits, try a Social security benefit calculator

8. Social Security Benefits • Some recipients of Social Security Benefits must pay tax on those benefits. • The Government devised a complex formula that can result in the taxation of up to 85% of social security benefits for taxpayers who have significant other income while leaving benefits completely tax free for those who have little other income • MAGI = AGI before any social security benefits + exempt interest income + ½ of social security benefits

9. Social Security Benefits • If MAGI is less than $25,000 for single individuals or $32,000 for married couples, then none of the social security benefits received are taxable • Single taxpayers with MAGI above $34,000 and married taxpayers with income above $44,000 can be taxed on up to 85% of their benefits • Taxpayers between the above thresholds can be taxed on up to 50% of their social security benefits • MAGI = AGI before any social security benefits + exempt interest income + ½ of social security benefits

10. Unemployment Compensation Law • Unemployment insurance provides workers, whose jobs have been terminated through no fault of their own, monetary payments for a given period of time or until they find a new job. • Unemployment insurance is based on a dual program of federal and state statutes. The program was established by the federal Social Security Act in 1935. Much of the federal program is implemented through the Federal Unemployment Tax Act. • Each state administers a separate unemployment insurance program, which must be approved by the Secretary of Labor, based on federal standards. The state programs are explicitly made applicable to areas normally regulated by laws of the U.S.

11. Unemployment Compensation Law • To support the unemployment compensation systems a combination of federal and state taxes are levied upon employers. • State employer contributions are normally based on the amount of wages they have paid, the amount they have contributed to the unemployment fund, and the amount that their discharged employees have been compensated from the fund.

12. Unemployment Compensation Law • The proceeds from the unemployment taxes are deposited in an Unemployment Trust Fund (the Fund).

13. unemployment compensation law • Georgia: • To apply for unemployment • To Learn About Unemployment Benefits for Individuals

14. Employment RetirementSecurity Act(ERISA)

15. Myths About ERISA • Your pension plans are not protected against the trustees who administer them • If you put money into a retirement plan, it will be there when you retire • If you put money into a retirement plan, it will not be there when you retire • ERISA applies only to retirement or pension funds

16. The Employee Retirement Income Security Act (ERISA) 1 • ERISA governs benefit plans broadly, and not only pensions. • ERISA categorizes benefits as: • Pension plans (to provide retirement income) • Welfare plans (covers all other benefits, including health care insurance, childcare subsidies, pre-paid legal services, etc.) • Benefits not covered by ERISA include premium pay, sick pay, vacation pay, college scholarship or tuition plans, and the like.

17. The Employee Retirement Income Security Act (ERISA) 2 • ERISA preempts state laws even remotely relating to the regulation of benefit plans. • State and city laws requiring employer contribution to health care insurance are likely pre-empted by ERISA. • ERISA is a complex law containing four Titles. • Our focus will be on the employee rights provisions of Title I.

18. The Employee Retirement Income Security Act (ERISA) 3 • Title I requires that employers: • Advise employees regarding the benefits they offer • Deliver promised benefits • Provide claims and appeal procedures • Manage benefits wisely and for the benefit of its employees, a fiduciary duty • Not interfere with or retaliate against beneficiaries

19. ERISA: Advise Employees re Benefits Offered • Summary Plan Description (SPD) • Must be given to employees with 90 days of eligibility for benefits • Summary of Material Modifications • Outlining changes to benefit plans • Summary Annual Report • Financial data on benefit plans • Individual Benefit Statement • Regarding employee’s individual pension plan • Disclosure Notice • Notifying employees of certain funding problems with pension plans

20. ERISA: Deliver Promised Benefits 2 • Employees may sue for a denial of benefits. • If the plan administrator had discretion to determine eligibility for benefits, the issue is whether the administrator abused its discretion. • Conflicts of interest between beneficiaries and an administrator who has a direct financial stake in limiting access to benefits may be taken into consideration, but they are not legally prohibited. • Administrators of benefit plans must base benefit determinations on plan documents, have reasons for their decisions, and use all the current and relevant information available to them.

21. Just the Facts • An employee with history of coronary artery disease underwent surgery for her condition. Several weeks later she was re-hospitalized, suffering from a severe staph infection from her earlier surgery. She became seriously ill and disabled, and applied for benefits under her employer’s long-term disability plan. She was rejected on the grounds that her claim was “caused by, contributed to by, or resulting from [a] pre-existing condition.” The report acknowledged that the staph infection was not a pre-existing condition, but asserted that it resulted from surgery for her pre-existing coronary problem. Did the plan administrator violate ERISA by denying disability benefits to this woman? Does it matter that the disability benefits would have come directly out of the profits of the insurance company that denied her claim? • Fought v. UNUM Life Insurance Company of America, 379 F.3d 997 (10th Cir. 2004); cert. denied, 2005 U.S. LEXIS 3888

22. ERISA: Provide Claims & Appeals Procedures 1 • Employers must provide “reasonable” claims and appeal procedures. • Standards for handling health insurance claims are more stringent than for other benefits. • Employers may not impose filing fees on claims. • Decisions regarding claims must be made within 90 days, but more quickly for health insurance claims. • Urgent care claims must be decided within 72 hours. • Claims for treatment already received, within 30 days.

23. ERISA: Manage Benefits as Fiduciaries • Anyone who exercises discretion or control over a benefit plan is a fiduciary, including employers and their agents who administer plans or give advice. • Fiduciaries must manage such assets solely for the benefit of the beneficiaries, with prudence. • For pension plans, fiduciaries must diversify plan assets, monitor performance, and refrain from transactions that raise a conflict of interest. • They must provide accurate information and disclose material facts.

24. ERISA: Refrain from Interference or Retaliation • ERISA prohibits discrimination against a beneficiary for exercising any benefit right to which he is entitled or for the purpose of interfering with benefit rights to which he may become entitled. • This rule applies to both pension and welfare plans. • But it has been interpreted narrowly and applied only to cases in which an adverse employment decision was made for the express purpose of defeating such rights. • Rule: Employers must not discharge or discriminate against employees because they have used benefits to which they are entitled or to prevent them from using benefits to which they are entitled.

25. Types of Plans to Which ERISA Applies • ERISA covers employee benefit plans • Welfare plans • Pension plans • Defined benefit contribution plans • Defined benefit plans • Qualified plans must be permanent, in writing and communicated, must have assets held in trust, and must exclusively benefit employees and beneficiaries

26. ERISA: Pension Plans 2 • A defined benefit planguarantees to the retired employee a certain benefit each month, calculated according to a formula. The employer must assure that enough funds are available to make these payments. • The employer assumes the risk. • A defined contribution plangrants a contributed amount, to be invested by the employee. The amount of the benefit depends upon the success of the employee’s investment. • The employee assumes the risk.

27. ERISA: Pension Plans 1 • ERISA regulates pension plans more closely than welfare plans. • Pension plans must “vest” after a certain period of time, resulting in a nonforfeitable right to a pension. • Pension plans may be modified or discontinued, but plan participants must be able to retain benefits already accrued. • The Pension Benefit Guaranty Corporation was created to protect beneficiaries of defined benefit plans.

28. ERISA: Pension Plans 3 • Cash balance plans are defined benefit plans that have features of defined contribution plans (hybrid plans). • They pay a benefit based on average annual income over a working lifetime, while traditional pension plans formulate benefits based on later, usually higher-paying years. • A conversion from a traditional defined benefit plan to a cash balance plan may impact older workers negatively, reducing their benefits.

29. ERISA: Health Insurance 1 • Managed Care Organizations (MCOs) such as Health Maintenance Organizations (HMOs), and Preferred Provider Organizations (PPOs) receive money for providing health care and profit to the extent that costs can be minimized. • Much treatment must be pre-authorized and MCOs may deny benefits. • Even if an employee sues over a denial of benefits and wins, damages are limited to the recovery of benefits previously denied.

30. ERISA: Health Insurance 2 • The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires employers to provide employees the option of continuation of health insurance when qualifying events occur. • The Health Insurance Portability & Accounting Act (HIPAA) restricts the use of pre-existing conditions to disqualify an employee for medical coverage.

31. Just the Facts • An employee was terminated after a change of ownership at a company. The employee’s wife had breast cancer at the time and he wanted to maintain health insurance coverage for the two of them. He asked at the office whether he would be able to continue coverage after his termination. On his last day of work, he was informed verbally that his health insurance would be continued. However, when his wife sought medical treatment about 9 months later, she was told that she had no insurance coverage. Did this employer violate COBRA? • McDowell v. Krawchison, 125 F.3d 954 (6th Cir. 1997)

32. Discrimination and Benefits • Health care for older workers is typically more expensive. • The Older Workers Benefit Protection Act (OWBPA) permits employers to provide less extensive coverage for older workers, as long as the amount expended is equal to that spent on other workers. • This applies only to welfare plans for which costs are age-related and not to pension plans.

33. The Older Workers’ Benefit Protection Act of 1990 • Employee waivers of their rights to file discrimination actions under ADEA: • a) The waiver must be written in a manner calculated to be understood by an average employee; • b) The waiver must specifically refer to ADEA rights or claims (but may refer to additional acts such as Title VII or applicable state acts); • c) The waiver only affects those claims or rights which have arisen prior to the date of the waiver, i.e. the employee is not waiving any rights acquired after he date of execution; • d) The waiver of rights of claims may only be offered in exchange for some consideration in addition to anything to which the individual is already entitled (this usually involves inclusion in early retirement program); • e) The employee must be advised in writing to consult with an attorney prior to execution of the waiver (this does not mean that the employee must consult with an attorney, but must merely be advised of the suggestion.); • f) The employee must be given a period of 21 days in which to consider signing a waiver, and an additional seven days in which to revoke the signature. Note that where a waiver is offered in exchange for an early retirement plan as opposed to some other consideration, the individual must have 45 days in which to consider signing the agreement; • g) If the waiver is executed in connection with an exit incentive (early retirement) or other employment termination program, the employer must inform the employee in writing of the exact terms and inclusions of the program.

34. See Bennett v. Coors Brewing Co., 189 F.3d 1221 (10th Cir. 1999)

35. Domestic Partner Benefits • Since federal law does not now prohibit discrimination against gays and lesbians, it does not require benefits for domestic partners. • Many cities and states offer such benefits. • Employers may decide whether or not to offer benefits to domestic partners, either of the same or different sexes. • One court has ruled that benefits offered to same sex couples only does not constitute sex discrimination. • 92% of corporate respondents to a voluntary corporate equality index survey reported offering such benefits.

36. What Would You Do? • The firm you work for has maintained a defined benefit plan, an increasingly rare pension plan for today’s corporations. But like everyone else, the economic downturn has affected your plan investments severely, and you are considering converting from a defined benefit plan to a cash balance plan. Can you do this? What legal and ethical issues does your firm face if the conversion goes forward? How can you address them?