Employers who do not provide benefits to contingent workers will find themselves under increasing pressure to do so. While the use of temporary employees and independent contractors has been on the rise as companies attempt to hold down staffing costs, these workers have made the issue of benefits a major legal battlefield involving some of America’s largest companies. Furthermore, the United States Department of Labor is seeking to force more companies to provide benefits to contingent workers. Employers can reduce the risk by carefully drafting their benefits plans.
Employers will face dramatic increases in the time and expense required to process insurance claims if proposed Department of Labor regulations are finalized. The Department is seeking to impose new requirements on how employers, insurance companies and HMOs process employee claims under healthcare plans, such as requiring that licensed, independent healthcare professionals review denied claims.
Employee Stock Ownership
Owners of small and medium-sized businesses will increasingly take advantage of the tax incentives afforded to employee stock ownership plans. Subchapter S corporations, a common form of small and medium-sized businesses, have only recently been allowed to adopt employee stock ownership plans, and their popularity will grow as the tax advantages become better known.
Employers will face increased challenges to their benefit programs under the Americans with Disabilities Act (ADA). The extent to which the ADA regulates benefit programs, especially medical plans, will continue to be a hotly disputed issue. Common plan provisions, such as limits on payments for fertility treatments, may be attacked as violations of the ADA.
If a proposal by the Financial Accounting Standards Board regarding stock options is approved, it will place new limits on an increasingly popular element of executive compensation. Under present accounting rules companies can avoid any impact on reported earnings when compensation is paid through stock options. The proposed plan would require companies’ reported earnings to reflect options granted to non-employee directors and consultants, and options that are repriced following a drop in stock prices. Although final action on the proposal is not expected until September, 1999, the changes will be effective retroactive to December 15, 1998.
Deferred Compensation Plans
Because of increasing scrutiny by the Securities and Exchange Commission, more and more companies will register their deferred compensation plans in 1999. While deferred compensation is another frequent component of executive pay, companies usually have not considered their deferred compensation plans as separate "securities" which must be registered with the SEC.
Y2K and Employee Benefits
Employers should make every effort to ensure that their employee benefit trustees, record-keepers and other service providers have Y2K-compliant systems, even as they resolve their own Y2K computer issues.
Social Security Reform
Social Security reform will likely be on Congress’s agenda in 1999. While it is not clear what form this will take, some proposals would allow employees to manage their own Social Security investment, just as they manage their 401 (k) investments. If Congress enacts these "retirement accounts" under Social Security, the effects are almost certain to spill over into 401 (k) plans.
Buoyed by one of the longest bull markets in history, traditional corporate pension plans are enjoying strong investment performance that will lead employers to seek new uses for excess pension assets. Jacobsen suggests that employers will look to fund exit incentives and obtain releases of employee claims using these assets. In addition, more and more employers will convert their traditional pension plans to "cash balance" plans, which directly show employees the value of their pension benefits.
Source: O'Melveny & Myers with offices in Los Angeles, New York, Washington, D.C., and several other cities. December 18, 1998.