Dallas Fort Worth Texas employers should watch closely that they don't become liable for offering 401K employee benefits to their employees. In an unanimous ruling on February 21, LaRue vs. DeWolff Boberg and Associates, the Supreme Court ruled that employers can be held liable if employees lose money in their 401K employee benefits plan. The Supreme Court ruled that LaRue, who lives in Texas, could sue to recover losses as well as profits he could have earned on that money.
The court's rationale in the ruling apparently was that employers are the ultimately fiduciaries of their 401K employee benefits plan, and that they must take their responsibilities seriously to make sure that plan administrative processes and procedures protect their employees' investments. The ruling delineates losses due to negligence on the part of the employer as opposed to market declines. But it may well take several followup court rulings on future lawsuits to make it clear as mud to determine when employers are negligent and when they are not.
Other recent court rulings have also made 401K plans legal quagmires for financial advisors. The time, administrative cost and added legal risks of 401K plans make them much less rewarding for employee benefits advisors to recommend to their client companies. What advisor in his or her right mind wants to recommend a retirement plan that could subject their clients as well as themselves to an expensive lawsuit from a disgruntled employee?
As DFW and Texas employers slice up their employee benefits budget to attract and retain valuable employees, they must decide where they spend their benefits dollars. As it is, the double digit inflationary increases in group health insurance plans and workers compensation costs aren't going to diminish, no matter who is in the White House or Governor's Mansioon. A change in parties controlling the White House and Congress could lead to a less business-friendly Supreme Court, and possibly increase the likelihood that lawyers will take up these type of cases.
The fallout from the ruling: Fewer advisors recommending 401K plans to their clients and fewer companies offering 401k plans to their employees. What employee benefit advisor wants to recommend an employee benefit to their client companies that could get their client, and themself, tangled up in a court test case lawsuit?
The 401K is one of very few federal programs where the government gives average employed Americans a tax benefit to encourage saving for retirement. And it is the only federal program we can think of where the average American working person actually gets paid by their employer to learn, ask questions and get one on one professional financial education and get sound advice from a financial advisor during the open enrollment period and the periodic 401K plan update meetings conducted by the advisor.
At a time when federal Medicare and Medicaid programs are close to insovency and the cost of healthcare at retirement and the cost of long term care is astronomical and climbing, one would think that any progam that encourages and educates Americans on the need for saving would be good public policy.
Unfortunately, the LaRue ruling puts a wet blanket on 401K plans, and in so doing, discourages Dallas and Texas employers from providing a great employee benefits program that gives employees basic financial education and an incentive to save for their retirement.
Filed under 401K, Group Benefits Advisors by on Mar 11th, 2008. Comment. 
The Boomer generation is rapidly retiring–over 12 million of us in the next decade will be of legal retirement age.
For many Dallas Fort Worth employers, this is a major brain drain that threatens the effectiveness of many organizations. The knowledge base and breadth of experience that members of this generation possesses cannot be easily replaced. Yet, the big health insurance companies and the state and federal insurance and tax codes force many employers to show their retirement age employees the door.
Many Dallas Fort Worth area employers are developing specialized employee benefits plans that incentivize their most valuable boomer employees to work past retirement age. Yet, this comes at a potentially great risk and cost for the company, as any company with more than 20 employees must offer the same group health insurance plan to their age 65+ employees as they do to their younger employees.
This risk is an actuarial certainty: older employees have a considerably higher likelihood of major medical claims than younger employees. Because an employer group health plan with older employees has more risk of medical insurance claims, the group health insurance premiums of the employer escalate.
A single major claim from any employee of any age can have a dramatic negative impact on rates. An employer that retains valuable older employees will therefore statistically have more claims, and will pay a considerably higher rate for their employee group medical premiums.
The employee benefits consultants at Group Benefits Advisors can assist Dallas Fort Worth area employers in devising a special Section 105 plan that will allow the employer to retain their retirement-eligible employees without this risk of raising premiums of their non-retirement age employee health benefit plans.
In fact, our employee benefits consultants can help Dallas Fort Worth area employers devise a plan that is a major win-win for both the employer and the retirement-eligible employee.
Within the special employee benefit plan documents that we develop for our clients, the employer can exclude these employees from their employee group medical plan. Our emploee benefits consultants can also show employers how they can set up a Medical Expense Reimbursement Account that specifies that any retirement age employee can be reimbursed for Medicare Part A and B on a pre-tax basis, and for a Medicare supplement plan on an aftertax basis.
The employee benefits plan document can also be set up to allow the employer to set aside in the reimbursement account any amount that they choose for age 65+ employees to reimburse for medical expenses or to pay for long term care insurance premiums.
This strategy has the following benefits for Dallas Fort Worth area employers:
- The employer can retain the valuable knowledge and experience by hiring post-retirement age employees.
- The employer avoids the rate increase that a single post-retirement age employee may have on the employer's group health insurance premiums.
- The employer avoids the rate increase that a single major medical claim experience from a post-retirement age employee could cause. This rate adjustment could be as much as 67% of the entire medical insurance premium for small employers in Texas.
This strategy has the following benefits to the post-retirement age employee:
- The opportunity to continue to work doing something that they truly enjoy doing, and the ability continue to save money for retirement, rather than draw retirement and funds at age 65.
- The opportunity to have a better health plan through medicare and a medicare supplement plan and at a lower cost than if they were part of their employer's group medical insurance plan.
- The opportunity to have a portion or all of their retirement medical expenses funded by their employer, including long term care.
- The opportunity to reduce income taxes by "trading taxable salary dollars for pre-tax medical expense dollars" with their employer.
- The opportunity to be able to collect social security by "trading taxable salary dollars for medical expense dollars with their employer" to the point that the salary they receive from their employer is below the limits allowable to collect social security payments. eligible.
For more information on how Dallas Fort Worth employers can implement a plan that will allow them to attract and retain valuable boomer retirement age employees but without increasing their employee benefits risk and costs, contact the employee benefits consultants today at Group Benefits Advisors today at (888) 398-6246, extension 120.
Filed under 401K, Consumer Driven Health Plans, Dallas Fort Worth Group Health Insurance, Employee Benefits Solutions, Group Benefits Advisors, Group Health Insurance Rate Texas, Group Health Insurance Texas, Health Insurance: Texas Small Group, Texas Group Health Insurance by on Apr 10th, 2007. Comment.