Employment Law Changes Impacting Retirement and Insurance Benefits

Employment Law Changes Impacting Retirement and Insurance Benefits

By: D. Keith Dunnagan, Esq.

March 23, 2021

Retirement planning has been a topic at both the federal and state levels for many years. It is no secret that Social Security as currently structured is struggling. It is projected that by as early as 2035 the social security trust fund reserves would be depleted and benefit levels would likely be reduced to 79% of the promised benefit. Further, company-sponsored pensions are largely a thing of the past. The idea of working for 20-30 years for a company and receiving a pension as the reward has overtime faded from the norm. As a result, the discussion of how to provide for a retiring population has become ever more pressing.

In 2016 California took a step at the beginning to tackle this issue with the CalSavers legislation. In this legislation businesses in California were required to either enroll their employees in the CalSavers program (a state-sponsored “IRA” for private-sector employees). This program is aimed to provide a retirement account vehicle for employees in those businesses that do not offer a 401(k). Currently, by June 30, 2021, businesses with more than 50 employees must either (a) offer an employer-sponsored plan or (b) register with the CalSavers program for their employees. However, while the offering of an employee sponsored plan is or will be required for all California businesses with more than 5 employees, participation is not mandatory. Employees still have the ability to choose whether or not they participate.

A new wrinkle in this debate is currently happening at the federal level under a bill referred to as the SECURE Act 2.0. Under this proposal, employees would have to be automatically enrolled into a direct contribution plan, and to be compliant, the plan would require an initial contribution rate equal to 3% of the employees wages. Subsequently, the contributions would increase 1% each year until 10% of the employees wages are being contributed to a qualified plan. While this plan requires contributions, what it does not seem to do is provide flexibility for the worker who may experience financial hardship and need to defer or suspend contributions for a period of time to handle certain financial issues. Certainly, this is something that proponents of the bill will need to address.

Further, what is not immediately clear is what impact such a program may have on small business. Many small businesses are struggling as a result of the COVID-19 pandemic. Adding another obligation to small businesses may be untenable. While there are some tax credits addressed in the proposed legislation, the credits are not based on the projected total cost to the business but only a small fraction of the costs. These added expenses can be difficult for small businesses to bear.

While on the topic of expenses, The American Rescue Plan, recently passed at the federal level added some new twists to the employment landscape. Certainly, the extension of a $300 per week supplement to unemployment benefits was welcomed by many as was the $1,400 stimulus payments.

A new wrinkle was added which includes a mandatory COBRA premium subsidy. Under this program, small businesses may be on the hook for a 6-month 100% COBRA premium subsidy between April 1 – September 30, 2021. There is much that is still being worked out as the IRS and DOL are required to provide guidance. Many small businesses had to make difficult decisions related to layoffs and terminations amid decreasing revenues as a result of COVID-19, and simply do not have the financial ability to take on costs of such premiums. Yet, under the new legislation, it seems as though any involuntary termination would require small businesses to provide a 6 month subsidy for those terminated employees. The silver lining, if there is any, is that under the legislation, the employer should be able to recoup the money spent on the subsidy as a tax credit on their quarterly filings. Nonetheless, it remains to be seen just exactly how this will work out in the short run.

Employment issues are constantly evolving and during this pandemic it seems the changes are almost daily. These issues are complex and there can be significant liability for violation of these rules, even minor violations. It is important to seek legal and tax advice on these issues and how they might effect your small business.

The information presented in this article is not to be taken as legal advice. Every situation is different. If you are facing a legal issue of any kind, get competent legal advice in your state immediately so that you can determine your best options.

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