What to Expect in Employee Benefits in ’09
Posted on January 13th, 2009 by Chad De Groot | 1 Comment »Filed under: ., Employee Benefits, HR Issues, Politics |
This past weekend I was in New Orleans attending the ABA Tax Section’s midyear meeting (I would have loved to provide an “on the road” update, but I refuse to pay $15 for one night of internet service in a hotel). Due to the deluge of guidance from the IRS and new legislation from Congress, the majority of the seminar focused on providing overviews of the recent changes. However, one discussion, which was appropriate for a January 2009 meeting, focused on potential benefits issues practitioners soon could be seeing coming out of the Obama Administration.
J. Mark Iwry, Of Counsel at Sullivan & Cromwell’s Washington, D.C. office, led the discussion. Mr. Iwry was clearly qualified to guide us as his impressive resume includes having been, among numerous other highly acclaimed positions, former Benefits Tax Counsel at Treasury and recently a policy adviser to Rahm Emmanuel. I’m going to focus on just two pieces of the presentation.
Executive Compensation
First, Mr. Iwry discussed the near future of executive compensation legislation. After providing the great truism, “it is easier to afflict the comfortable than to comfort the afflicted,” Mr. Iwry explained how it is likely that Congress has yet to finish punishing executives for earning money. While providing no opinion as to whether limiting executive compensation is a laudable goal, Mr. Iwry was simply making the point that it is easier for Congress to hinder the rich through policy changes than it is to make life better for those who struggle. Certainly, it is easier to garner support from their constituents for such work. Therefore, despite the recent effectiveness of the Draconian 409A requirements, more is still to come.
Ironically, around the time Mr. Iwry was talking , Barney Frank was introducing legislation to further limit executive compensation under the Emergency Economic Stabilization Act.
Automatic IRAs
Another possible upcoming change to employee benefits law under the new administration that was touched upon was the introduction of the automatic individual retirement account, or “Automatic IRA”. This idea has received much attention and commentary as of late. The theory that this arrangement can mend the disaster that is the American retirement system stems from the success of auto-enrollment provisions under 401(k)s. Studies (not cited here) show that the participation in company-provided 401(k) retirement accounts skyrockets when individuals are automatically enrolled at the time they are hired. Clearly, this is a result of our society’s tendency to be complacent.
While auto-enrollment under 401(k) accounts has been working, only around 50% of employers provide retirement savings accounts of any kind, and just a small portion of those provide for auto-enrollment. This is because many employers don’t want to deal with the inherent costs and headaches that accompany a qualified retirement plan.
The Automatic IRA would essentially be just a payroll practice. The idea is that the federal government would implore employers to simply forward on the amounts deferred from individuals’ compensation to the specified IRA, but it does not seem that the plan is to make this practice mandatory. Call me a cynic, but I don’t believe employers who aren’t already sponsoring retirement plans would want to deal with even the miniscule burden of forwarding deferred compensation to an IRA, unless the practice is made mandatory, or there is an incentive to employers for doing so.
As we approach the end of 2008, when deferred compensation plans must be brought into documentary compliance with the rules under Code Section 409A, we sometimes forget about those poor non-executives who are burdened by the new rules as well.
