The Importance of Evaluating Employee Benefit Programs When Making Changes In Your Business

Transcription

1 The Importance of Evaluating Employee Benefit Programs When Making Changes In Your Business Tax, Finance, and Accounting Conference for Cooperatives Kelsey Mayo, Partner, PoynerSpruill Doug Fiero, Senior Director Field Services Karen Hsu Ford, Executive Director Retirement Plan Operations August 7, 2018

2 Agenda Overview Types of Business Changes Potential Employee Benefit Impacts Identify Goals Identify Your Benefits Resources Timelines Case Studies August 7, 2018 Pg. 1

3 Overview Changes Business Structure Activities to better serve the changing needs of your co-op members Acquiring another business Forming an operating division Spinning off an existing division Examples may include: Acquiring a smaller co-op Forming a broadband operating division Acquiring a local business that provides services complementary to your existing offerings August 7, 2018 Pg. 2

4 Overview Identify Your Resources Subject Matter Experts Attorneys Benefits Compliance Actuaries Consultants Field Representatives Vendors Third party administrators Insurers Payroll vendors August 7, 2018 Pg. 3

5 Overview Types of Benefits in Play Retirement Plans 401(k) Defined Benefit Plans (e.g., NRECA s Retirement Security Plan) Group Plans Medical Plan HRAs, FSAs, and HSAs Life, LTD, Dental, and Vision Other Benefits 457(b) and 457(f) deferred compensation plans Executive benefits PTO/Sick Pay plans August 7, 2018 Pg. 4

6 Overview Why It Matters Potential Liabilities Compliance considerations Taxability/Deductibility Recording/Allocating Costs Withdrawal Liabilities Providing Benefits Eligibility Union Contracts Controlled Groups Covered Directors and Retirees Executives and highly-compensated employees August 7, 2018 Pg. 5

7 Case Studies August 7, 2018 Pg. 6

8 Case Study #1: Co-op Mergers Co-op A and Co-op B want to merge their organizations: Scenario: Each of the co-ops have an RS Plan, 401(k) plan and Health Savings Account contributions but all are at different benefit levels Co-op A Co-op B RS Normal Retirement Age Years RS Benefit Level % 2.0% 1.5% 401(k) Employer Contribution 4% 2% Employer HSA Contribution $4000 $2000 (annual) August 7, 2018 Pg. 7

9 Case Study #1: Key Issues & Risks Unforeseen Pitfalls: Providing Benefits Which entity is the surviving entity? Merged into one? One becomes subsidiary? One buys the others assets? Who will employ the employees after merger? Plans need to reflect this Which entity benefits will be provided? August 7, 2018 Pg. 8

10 Case Study #1: Key Issues & Risks Unforeseen Pitfalls: Providing Benefits How will deductibles, HRA/FSA balances, and out-of-pocket maximums work? Executives Do arrangements need to be modified? For instance to ensure key employees stay? Any deferred compensation payable? Cash flow planned? Potential excise tax on compensation? What happens to plan(s) of disappearing entity? Who s responsible for wrap up? August 7, 2018 Pg. 9

11 Case Study #1: Key Issues & Risks Potential Liabilities COBRA Even if it is an asset purchase Reporting Obligations (particularly for pension) Plan compliance concerns for acquired plans Retirement Plan Operational Errors Wellness Plan Compliance Affordable Care Act Employer Mandate Executive Compensation Compliance Have any Benefits Recently Been Eliminated? Known/Expected Claims August 7, 2018 Pg. 10

12 Case Study #1: Key Issues & Risks Potential Liabilities Plan Costs Pension Funding/Termination Costs Post-employment Obligations (a/k/a retiree benefits) Correction of known/discovered errors Termination Payments: Severance/PTO cash-out/bonuses Ability to change/terminate benefits Termination costs of old plan August 7, 2018 Pg. 11

13 Case Study #2: Labor Considerations Same as Case Study #1 (co-op merger), but now separate unions are involved in merger Co-op A Co-op B RS Normal Retirement Age Years RS Benefit Level % 2.0% 1.5% 401(k) Employer Contribution 4% 2% Employer HSA Contribution $4000 $2000 (annual maximum) August 7, 2018 Pg. 12

14 Case Study #2: Key Issues & Risks Providing Benefits Union Negotiation timing Portability Ability to change benefits Where is union cycle related to market Additional costs and/or administration Potential Liabilities Cost of Benefits Withdrawal Liabilities Unplanned Contributions Dues Collection/Remittance August 7, 2018 Pg. 13

15 Case Study #3: Subsidiary Acquisition A cooperative wants to create a wholly-owned Broadband LLC subsidiary Scenario: a) For current employees, the electric cooperative provides the RS Plan, a employer 401(k) contribution, and offers an health reimbursement arrangement (HRA) to reduce out-of-pocket medical costs. b) For subsidiary employees, the cooperative wishes to exclude participation in the RS Plan and the HRA, but provide a higher 401(k) contribution. August 7, 2018 Pg. 14

16 Case Study #3: Key Issues & Risks Unforeseen Pitfalls: Providing Benefits Will subsidiary employees get the same benefits? If yes, new entity generally needs to be expressly included in benefit arrangements (participation generally not automatic) Failure causes operational errors If no, need to set up new arrangements (same plan or different one) Executives Do arrangements need to be modified? Non-qualified deferred compensation not payable if executive moves to subsidiary Does (or can) new entity have the same benefits? August 7, 2018 Pg. 15

17 Case Study #3: Key Issues & Risks Potential Liabilities Allowing New Co employees to participate without amending may create operational errors (or not allowing when plan says they can) IRS penalties Correction costs Addition of new plans Costs Contracts Sponsorship Transition Allocating Costs August 7, 2018 Pg. 16

18 Summary Identify your benefit resources, and communicate business changes promptly to your benefit plan administrators Identify potential liabilities and devote appropriate resources before the transaction Compare cost and benefit alternatives for executives, directors, & employees Different benefits for different employee groups may create non-discrimination issues. Certain benefit plan changes and amendments may need to be executed prior to the date of business merger or acquisition. Start the process as early as possible! August 7, 2018 Pg. 17

19 Questions August 7, 2018 Pg. 18