Compliance March 8, 2011

CA Bill Makes Adult Children’s Health Costs Tax Exempt

March 8, 2011 (PLANSPONSOR.com) – The California state Assembly has unanimously approved a bill keeping the amount paid for health care insurance for an employee’s adult children from being considered taxable income.
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The Associated Press reported that AB36, would align state tax code with federal law and would mean the state would collect $40 million less a year in tax revenue if the measure passes the state Senate and is eventually signed into law. The federal health care reform law allows parents to keep children up to age 26 on the parents’ policies.

Assemblyman Henry Perea of Fresno, who authored the bill, said the health care changes confused employers, who were not sure how to calculate the amount of tax to withhold from their employees’ income (see How Is State Tax Applied to Coverage for Adult Children under the PPACA?), according to the Associated Press.

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Without this tax credit, parents may not insure their adult children because of the financial burden the state tax imposes on already cash strapped families, said Perea in a Web site statement.

According to a Business Insurance report, California law currently sets a five-part test, all of which must be satisfied for the coverage to be excluded from employees’ taxable income. Among other things, the child must be younger than 19, or 24 if a full-time student. As a result, if an employee added an adult child who did not satisfy the test, the portion of the health insurance premium attributed to the child would be considered taxable wages and subject to California taxes.

More about the issue of taxing adult children’s health care costs is here.

Benefits March 8, 2011

Americans Want Pensions Back

March 8, 2011 (PLANSPONSOR.com) – A new public opinion research report indicates Americans think the recession revealed the flaws in the current retirement plan landscape and the government should make it easier for employers to offer pensions.
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According to “Pensions and Retirement Security 2011:  A Roadmap for Policymakers,” released by the National Institute on Retirement Security, nearly nine out of 10 Americans polled believe the retirement system is under stress and needs to be reformed. More than 80% of Americans believe that recent economic downturn exposed the risks of America’s retirement system, and nearly three-quarters believe that stock market volatility makes it impossible for the average American to predict how much money they will have in their nest egg when they retire.    

The poll results suggest pensions are reliable and relieve retirement anxiety. Eighty-three percent of Americans surveyed indicated that those with pensions are more likely to have a secure retirement, and 72% of those who have a pension are confident it will be there at retirement. In addition, 75% believe the disappearance of pensions has made it harder to achieve the “American Dream.”  

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Nearly 80% of respondents believe leaders in Washington do not understand how hard it is to prepare for retirement in this economy. Eighty-three percent say the government should make it easier for employers to offer pensions, and 81% believe that Washington leaders need to give a higher priority to ensuring more Americans can have a secure retirement.  

Eighty-four percent of Americans surveyed are concerned that current economic conditions are impacting their ability to achieve a secure retirement, with more than half (54%) very concerned.   

They have lowered their expectations for retirement, defining a secure retirement as simply surviving or living comfortably (34%), paying their bills (17%), and maintaining their pre-retirement lifestyle (11%). Only 11% expect retirement to include leisure, travel, restaurants, and/or hobbies.   

The research found Americans are taking a number of actions to improve their retirement prospects-saving more, getting rid of debt, delaying retirement, or looking for jobs with a pension.  

The report is here.  

In another recent report (see Group Blames DB Decline on Funding Volatility Concerns), the NIRS claimed that the legal and regulatory framework governing pension plans “created funding volatility for companies sponsoring pensions, rather than facilitating predictable costs that enable companies to effectively manage cash flow.” 

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