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Benefits Communication Are More Important Than Actual Benefits according to polling - According to a recent poll Watson Wyatt, employers offering rich health benefits but communicate poorly about the benefits suffer a high turnover of 17% among top-performing employees. However, employers with less costly benefits but effective communications lower good employee turnover of only 12%! The message: supplementing benefits with good communications will lower turnover by 5 to 8%. Additionally, only 22% of employees receiving poor communications and rich benefits program are satisfied; conversely, 76% with less rich benefits but good communications are satisfied. Employers can spend big money for benefits, but if the employees are not fully aware of cost or do not appreciate the value, the employer will experience inappropriate return on investment. In companies where health costs top 14% of total compensation, average turnover is 12.5% but at companies where less than 10% of comp going to health care, average turnover is only 8.8%. According to the poll, the average health care expenditure runs 11% of total comp. Watson

>> Few employees have a realistic sense of how much benefits cost their employer. The MetLife 2004 Employee Benefits Trend Study said that 28% of full-time employees believe that their employer spends less than $1,000 per employee annually for medical coverage! And 49% believe it’s less than $2,000 while only 27% think their employer paid $4,000 or more per year. The nationally average actually runs $7,289 per employee for family and $3,137 for single, according to Kaiser Family Foundation & Health Research and Education Trust. Workers don't have a clue but it’s not their fault. Only 31% of employees think their employers’ communicate benefits well. Too many employers do not take time to educate employees on the value of their investment so the employees underestimate the cost and value of their benefits. More than a third (34%) of the full-time employees surveyed say they are interested in having their employer provide a wide array of voluntary benefits. Employees view the payroll deduction associated with voluntary benefits as a "convenient way to make payments" (62%) and as a means for becoming “more disciplined about saving” (51%). The ability to sign up for insurance without going through a medical exam is also a strong selling point for 50% of employees. The MetLife Employee Benefits Trend Study was conducted in 2004 and consisted of two surveys. The employee survey, fielded by NOP World, polled 903 fulltime employees, age 21 and older, at companies with at least two employees, and 1,542 voting age consumers. The employer survey was conducted by TNS NFO and polled a total of 1,528 HR/Benefits executives from companies with at least two employees participated in the employer survey. MetLife.

Medical premiums rose approximately 10% for 2005; 6th straight year of double-digit increases. It now costs Employers about 9% of payroll for health benefits, v. to 7.28% in 2000. Causes may include: reimbursement rates to hospitals & physicians on the rise & the cost of improving medical technology, longer lifespan & longer periods of medical care, Rx cost increases of 15%, the aging workforce and the general deterioration of health. Increased use of co-payments at doctors' offices is also to blame. And TV Rx ads!

34% of Small Firms Pay Entire Health Premium according to a recent study - by the International Profit Associates Small Business Research Board (IPA SBRB). They also discovered that 33% do not offer health coverage. 34% pay the entire premium, 36% pay more than half & 29% pay up to half of the premium. 88% of those polled said they will maintain or increase the amount they are contributing. Currently, this is their TOP concern, followed by finding quality employees - 16%, ability to obtain capital - 10%, taxes - 8%, interest rates - 6%, foreign competition - 4% and government regulation - 4%.175 businesses owners participated in the IPA SBRB poll via phone, e-mail and fax. www.ipasbrb.com

A new Study says that More Americans are willing to have restrictions on their choice of medical providers in return for saving on medical expenses. The AP says 59% of workers are willing to make this tradeoff, up from 55% in 2001. The study was conducted by the Center for Studying Health System Change. 66% of EE’s making $36,800 66% are willing to accept fewer providers for cost savings; 54% @$73,600 are. However, from 1997 to 2001 the preference between cost and choice was stable because consumers backlashed against restrictive managed care.

[DOL Advisory Opinion 2005-02A (Feb. 24, 2005) www.dol.gov/ebsa/regs/aos/ao2005-02a.html] helps clarify fee & commission information insurers must provide plan administrators for form 5500, schedule-A  - In 2005-02A, an insurer asked for guidance on the duty of insurance companies regarding Form 5500, Schedule A, about fees & commissions paid to brokers, agents, and others, suggesting some entities have developed a pattern of underreporting such amounts. This DOL response indicates if any benefits under an ERISA plan are provided by an insurance company or similar organization, the plan is required to file a Form 5500 & attach a separate Schedule A for each insurance contract. Schedule A also requires the plan administrator to report information about each agent, broker, and other person who was paid commissions or fees, including the amounts paid.  Such amounts include “all commissions and fees directly or indirectly attributable to a contract or policy between a plan and an insurance company, insurance service or similar organization.”  //\\  Fees & commissions reported on Schedule A include the following: (1) commissions and fees paid where the broker’s, agent’s, or other person’s eligibility is based on the value (e.g., premiums) of contracts or policies placed with an ERISA plan, such as profitability bonuses; (2) non-monetary forms of compensation, such as prizes, trips, and gifts; (3) fees and commissions paid from a separate bonus fund and not directly from the insurance company’s general assets; (4) fees or commissions classified as “profit-sharing” payments, delayed compensation, or “reimbursements” for various marketing or other expenses; and (5) finder’s fees and other similar payments made by a third party to brokers, agents, or others where the insurer reimburses the third party for the payment.  Insurers must provide plan administrators with a proportionate allocation of commissions and fees attributable to each contract for which a Schedule A must be filed & when amounts paid to “general agents” and “managers” should be reported on Schedule A. Insurers must keep the records verifying fee & commission information for at least six years, as set forth in ERISA Section 107.   //\\   2005-02A describes the compensation to be disclosed on Schedule A. Insurers must provide Schedule A information within 120 days of the end of the plan year. If information is still missing by the plan’s filing deadline, instructions to Form 5500 direct the plan administrator to note this on Schedule A and to file a supplementary Form 5500 when the information is obtained.

03/02/05 The IRS stated how it intends to implement the Roth 401(k) provision of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) that allows employees to put away money that has been taxed for the current year, let it grow tax-free in a 401(k), then allow contributions & earnings to be distributed tax-free retirement. Employees can start designating contributions as "Roth" contributions after Jan. 1, 2006. Under this proposal, the designated Roth contributions would be treated as wages subject to applicable income tax and other withholding requirements and these funds would have to be maintained by the plan in a separate account. Gains, losses, and other credits or charges must be separately allocated on a reasonable and consistent basis to the separate Roth account and other accounts under the plan but forfeitures may not be allocated to the Roth account. Roth contributions have to meet the same requirements as those applied to elective contributions, including nonforfeitability and distribution restrictions and the rules of tax Code Section 401(a)(9)(A) and (B) relating to minimum distributions. Roth contributions are taken into account under the ADP test of Section 401(k) in the same manner as pre-tax elective contributions. Roth 401(k) funds must remain in the plan for at least five years to receive tax-free distribution treatment. Under current law, the Roth provision will sunset at the end of 2010, so participants can never enjoy the Roth benefits, UNLESS Congress extends the law!

IRS revises 2005 version of publication 15-B to reflect that HSAs can be offered under a cafeteria plan [IRS Publication 15-B (Employer's Tax Guide to Fringe Benefits (For Benefits Provided in 2005)) www.irs.ustreas.gov/pub/irs-pdf/p15b.pdf

The DOL: A Look At 401(k) Plan Fees for Employees

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