Tuesday, May 3rd
“A How to Guide: Total Rewards Program”

Presented by: Joe Asencio – AON Hewitt, Michael Dimenstein – Yale New Haven Health System, Pam Sande – Pamela Sande & Associates, and Tom Wilson – Wilson Group

Hyatt Regency

1 Goat Island

Newport, RI

Register at: http://www.tristatehrm.com/

numbers-time-watch-white (2)A little over a year ago, President Obama signed a Presidential Memorandum directing the Department of Labor (DOL) to update the Fair Labor Standards Act (FLSA) regulations that define the conditions under which white collar workers are exempt from having to be paid overtime. The DOL published the proposed rules on July 6, 2015. It was expected that the DOL would publish the final rules in July 2016, but we have been hearing that they may be published earlier than July.

The proposed rules would increase the minimum salary thresholds required for white collar workers to be treated as exempt from overtime requirements. The table below compares the current thresholds to the new proposed thresholds.

Threshold DescriptionCurrent ThresholdProposed Threshold
Standard salary level required for a white collar worker to be treated as exempt$455 per week ($23,660 a year)Level equal to 40th percentile of weekly earnings for full-time workers ($970 per week or $50,440 a year for 2016)
Total annual compensation required to treat highly compensated employees (HCEs) as exempt$100,000Level equal to annualized value of the 90th percentile of weekly earnings of full-time salaried workers ($122,148)

The proposed salary threshold required for a white collar worker to be treated as exempt represents a significant increase in the current threshold. In addition, the proposed rules provide for annual automatic increases in the threshold levels. The proposed threshold and annual automatic increases in the threshold is of significant concern to many businesses.

In the meantime, a new bill was introduced in the Senate on March 17th that would not allow the DOL to enforce the proposed rules (or final rules if published before the new law is passed) unless the DOL meets certain conditions, including:

  • Conducting a full and complete economic analysis with improved economic data on small businesses, nonprofits, and all other employers
  • Minimizing the impact on employers before publishing any similar rules
  • Providing a rule of construction regarding the salary threshold exemption under the FLSA and for other purposes

The bill, however, does not prevent the DOL from moving forward with final rules, and the process for passing a new law can take time.

Is your business ready for the potential changes? Have you determined the impact of the potential changes on your business? Here are some steps you can take to help determine the impact on your business:

  • Compile a report listing all positions and employees paid on a salaried basis below $50,400
  • For positions paid less than $50,400, determine if they would be correctly classified as exempt if the salary was increased to meet the threshold requirement
  • For positions that pass as exempt if the salary was increased, determine what the cost of increasing the salary to the minimum threshold would be versus making the position nonexempt and eligible for overtime
  • Be sure to look at whether you have employees in the same jobs with some paid less than the proposed threshold and some paid more and determine the potential impact
  • When modeling the financial impact, factor in automatic increases in minimum salary thresholds (Examples: Determine the cost impact for three year period, determine cost impact for increases required because of compression issues, etc.)
  • Based on your financial analysis, develop a strategy for addressing the impact of potential changes
  • Based on your strategy, determine if any system and process changes will be required and the timing and resources that will be required to do the work involved

To view the FLSA proposed rules and the new bill introduced in the Senate, see our Resources page. We will also post the DOL final regulations on our Resources page as soon as they are available.

ACAPresident Obama signed into law the Consolidated Appropriations Act on December 18, 2015, which among other things delayed the effective date of the Cadillac tax on high-cost employer sponsored health plans from 2018 to 2020.

The Affordable Care Act (ACA) imposed a 40 percent excise tax (commonly known as the Cadillac tax) on employer sponsored “excess benefits.” For purposes of determining “excess benefits,” all employer sponsored health plans must be aggregated, including not only insured and self-insured group health plans but also most wellness programs, FSAs, employer and employee pre-tax contributions to HSAs, HRAs, on-site medical clinics, executive physical programs, retiree health coverage, and other specified types of coverage. If the aggregated coverage exceeds specified thresholds, Cadillac taxes must be paid on the amount that exceeds the thresholds. The thresholds are currently $10,200 for self-only coverage and $27,500 for family coverage. These thresholds will be updated before the tax takes effect in 2020 and indexed for inflation in the years that follow.

Another important change is that the Consolidated Appropriations Act made the Cadillac taxes when paid deductible for federal tax purposes. Before, the taxes were not deductible.

Although the delay and making the Cadillac tax deductible are great news, the Cadillac tax continues to be of considerable concern in that some employers may decide to reduce the value of the health benefits they currently provide employees in order to avoid paying the taxes. Making the taxes deductible could help mitigate some of this concern, however.

desk-office-workspace-coworkingThe Department of Labor (DOL) published final rules on April 8, 2016, that define who is a fiduciary of an ERISA employee benefit plan as a result of giving investment advice to a plan or its participants or beneficiaries.

The purpose of the final rules is to protect investors by requiring anyone who gives retirement “investment advice” to plans to comply with a “fiduciary” standard that “puts their clients’ best interest before their own profits.” The rules define investment advice as a recommendation to a plan, plan fiduciary, direct or indirect, on whether to buy, hold, sell, or exchange securities or other investments, including recommendations after investments are rolled over or distributed from a plan or IRA. In addition, investment advice includes recommendations regarding the management of investments, investment policies, portfolio composition, selection of individuals or firms to provide investment advice, selection of investment account arrangements, or recommendations regarding rollovers, transfers, or distributions from a plan or IRA. Education and general communications are not considered to be fiduciary investment advice.

Certain types of relationships must exist for recommendations to give rise to fiduciary investment advice responsibilities. These relationships include persons who, in exchange for a fee or other compensation:

  • Acknowledge they are acting as a fiduciary
  • Give advice based on the particular investment needs of a recipient pursuant to a written or verbal agreement, arrangement, or understanding
  • Provide the advice to a specific recipient or recipients regarding a particular investment or management decision concerning securities or other investment vehicles of the plan or IRA

The final rules provide an exemption referred to as the “Best Interest Contract Exemption” (BICE). This provision allows investment advisors to continue to receive commission-based compensation as long as specific conditions are met. To meet the conditions, a financial institution must:

  • Acknowledge it and its advisors are a fiduciary
  • Comply with basic standards of impartial conduct
  • Have policies and procedures designed to mitigate harmful conflicts of interest and disclose basic information about their conflicts of interest and cost of advice

Although the effective date of the regulations is June 7, 2016, compliance with the final rules is not required until the “applicability date,” which is April 10, 2017. The DOL explained that “in light of the importance of the final rule’s changes, an applicability date of one year after publication of the final rule is appropriate and gives adequate time for plans and their affected financial services and other service providers to adjust to the change from non-fiduciary to fiduciary status.”

If your business provides retirement benefits, we recommend that you discuss the rules with your administrator, broker, and others providing services to the plan and assess the impact of the rules on your current arrangements.

For a copy of the DOL’s Final Rules and Fact Sheet, go to our Resource page.