Companies can shorten weeks; maintain benefits
With businesses looking to pinch pennies, one method is to temporarily move to four-day work weeks, or suspend 401(k) matching programs or sometimes drop pension plans.
Moving to a four-day work week can elicit worries for both the employer and the employee, especially the fear of losing benefits. But there may be no cause for alarm.
“(Companies ask), ‘We have to cutback to four days, but what do we do about our employees because our health insurance says they have to be full-time?’” said Maggy McPhee, director of information services at The Employers’ Association.
“Basically, I think employers need to know they just need to call their insurance company. Yes, that’s what their policy says, but our theory is you can always talk to your insurance company and see what they can do about amending or adjusting their planned documents.”
McPhee stressed that the meaning of “full-time” can vary among companies.
“It all depends on how they define full-time. Full-time could be 40 hours for some companies and 34 for others,” she said. “Sometimes anything over 30 hours makes you eligible for benefits.”
Health insurance premiums are typically set for the year, said McPhee, but many other parts of a health insurance policy may be negotiable.
“The companies are the ones paying the insurance companies, so the companies are the customer,” said McPhee. “I get calls from people saying, ‘Well, I can’t do this, because my insurance policy says that.’ And I say, ‘Yeah, but who’s paying for that insurance policy?’”
Frank E. Berrodin, a member at Miller Johnson who specializes in employee benefits and executive compensation issues, said for many companies, having employees hit the hour requirement to gain benefits is not much of a challenge even at four days per week.
“Most of the benefits that most employers provide, the hour requirements are low enough that they would still satisfy the requirements,” said Berrodin. “For retirement plan contributions, it’s usually a thousand hours a year, and you’re still going to hit that easily at four days a week. For health insurance and things, most of the time you see a 30-hour a week (requirement), so you could be getting close to that. I think most employers provide benefits to people if they’re working more than about half time.”
When it comes to retirement plans, Berrodin said that many companies have moved from a traditional pension plan to a 401(k) and the rules surrounding each are different.
“(Companies) should be really careful if they have a defined benefit pension plan or even a money purchase pension plan. Those are certainly less common these days, but if they have those, there is an advanced notice requirement before they, in any way, reduce the future accruals by participants under those plans, and the penalties are significant if they fail to give advanced notice,” said Berrodin.
The advance notice can be anywhere up to 45 days and the penalty can reach a maximum of $100 per day per participant.
“In a 401(k) plan, which most companies these days have gone to, you still have to notify the employees if you’re going to change the match or if there’s an employer discretionary contribution that you’re not going to make anymore, but there’s no advanced notice requirement for that. You can basically tell them that it’s stopping as of tomorrow and make no further matching contributions or profit sharing, and obviously that’s happening a lot.”
With both pensions and 401(k)’s, union issues may play a factor, and companies should be alert to the collective bargaining agreement. Most recently, Herman Miller announced temporarily suspending its 401(k) matching plan beginning March 9, as well as a 10 percent reduction in hours and pay for most U.S. salaried employees beginning March 13 — a move that is far from uncommon in the current economic conditions.
Berrodin suspects that there could be many changes in benefit packages and investment strategies as a result of the current economic downturn. He theorized that many people may return to professional service investing over a do-it-yourself service like a Scottrade or E*TRADE service.
Most interesting, however, will be the discussions that arise about retirement plans and strategies.
“By far, the majority (of companies) these days are just in a defined contribution plan like the 401(k) and profit sharing. That trend is continuing to occur. Whether that trend will swing back after this meltdown is over with is certainly possible. I think people are starting to understand the drawbacks or the weaknesses of the 401(k) plan in this environment,” he said.
“I think there’ll be some serious debate about our retirement system in the future and what it should look like. As good as 401(k) plans are for a portion of the population, I think we’re realizing they can’t be the sole source of retirement income for the majority of workers in the United States.
“We need to have, in addition to a fairly strong social security system, possibly that third leg of a defined benefit pension plan to provide that base, so that people who suffer these big downturns right before they’re going to retire don’t suffer a huge drop in their standard of living in retirement.”