Compliance October 5, 2012

Employer Reserved Right to Terminate Retiree Benefits

October 5, 2012 (PLANSPONSOR.com) – A federal appellate court has decided retirees of Acument Global Technologies are not due lifetime health benefits because Acument reserved the right to terminate them.
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The 6th U.S. Circuit Court of Appeals noted that although the plaintiffs bring their claim under the Employee Retirement Income Security Act (ERISA) and the Labor Management Relations Act (LMRA), their entitlement to health benefits is a matter of contract. The court found the governing collective bargaining agreement (CBA) between Acument and the employees did not create unalterable lifetime—“vested”—health care and life-insurance benefits, because the CBA reserved Acument’s right to modify or terminate future benefits.  

The appellate court pointed to language in an appendix to the CBA that said: “The Company reserves the right to amend, modify, suspend or terminate the Plan.”   

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The court also rejected the retirees’ argument that since the health care benefits were tied to the retirement-income provisions of the CBA, that meant they were intended to be provided for life. The 6th Circuit agreed that in previous opinions it found language tying health care benefits to retirement-income benefits demonstrated the parties’ intent to create vested health care benefits, but said if that is true, so too is the opposite. “When retirement-income benefits have not vested due to a reservation of rights, language tying health care benefits to retirement-income benefits demonstrates that the employer did not promise lifetime, unchangeable benefits,” the court opinion said.  

According to the opinion, prior to 2008, the company paid health care and life-insurance benefits to qualified retirees. When Acument ended these benefits in 2008, a class of 64 retirees claimed that the company had violated the CBA in violation of ERISA and the LMRA. A district court granted Acument’s motion for summary judgment, and the plaintiffs appealed. The 6th Circuit affirmed the district court’s ruling.  

The opinion in Witmer v. Acument Global Technologies, Inc. is at http://www.ca6.uscourts.gov/opinions.pdf/12a0338p-06.pdf.
Benefits October 5, 2012

HSA Savers Are Better 401(k) Savers

October 5, 2012 (PLANSPONSOR.com) – Participants who saved in both a 401(k) and health savings account (HSA) in 2011 had a higher 401(k) balance than those who only saved in a 401(k), a Fidelity Investments study found.
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This result was unaffected by level of income. Additionally, nearly one-quarter of continuously contributing HSA account holders save most of their contributions, which will help pay for escalating costs of health care in retirement.  

On average, 401(k) participants who also contributed to an HSA in 2011 deferred 8.5% of their annual salary into their 401(k). Those who only saved in a 401(k) contributed an average of 8.1%

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The average 401(k) balance for participants earning $40,000 to $60,000 a year and saving in both their workplace savings plan and an HSA was $63,000. Those in the same income bracket who saved only in a 401(k) had an average balance of $46,100, or 28% less. Likewise, those earning $100,000 to $150,000 a year and saving in both vehicles had an average 401(k) balance of $226,800, but those saving in just a 401(k) saw an average balance of $174,200 or 23% less.

“During benefit enrollment season, it’s encouraging to see that on average, saving in an HSA is not done at the expense of an employee’s crucial 401(k) retirement savings,” said William Applegate, vice president, Fidelity Investments.  “Employers and employees alike are increasingly recognizing the importance of planning for current and future health care costs and many are beginning to integrate this tax-advantaged product into their overall retirement strategy.” 

Fidelity found among its HSA account holders: 

  • Nearly one-quarter (23%) are savers, or those who spend only 10% or less of their annual contributions, electing to invest their remaining balances for health care costs in retirement; 
  • Thirty-three percent are spenders, meaning those who spend 90% or more on their annual contributions on qualified medical expenses; and 
  • Forty-four percent are hybrids, or those that spend their contributions buts also leave year-end remaining balances.

 

In 2011, the average HSA balance and contribution dropped from 2010, but for savers and hybrids, the average balances rose in 2011 over the previous two years.

Fidelity studied its HSA account holders who made continuous contributions to an HSA from 2009 to 2011 and uncovered an increased average balance across all categories of 50%, from $3,200 to $5,100. But savers saw a more than 100% increase in average balances from $5,900 to $12,100. For hybrids, average balances grew 79%, from $3,300 to $5,900.

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