Benefits January 27, 2004

Employees Prefer Internet for Enrollment

January 27, 2004 (PLANSPONSOR.com) - With 77% of employees enrolling for benefits online, the Internet is far and away the favorite medium for workers to make benefits elections.
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Enrollment figures online in 2003 represent an increase of 7% from 2002’s figures and 25% from 2003. Given the sheer magnitude of employees logging on when open enrollment season comes around, it is little wonder that 96% of employers offered Web-based enrollment, up from 59% in 2000, according to research conducted by Hewitt Associates.

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Additionally, more than one-fifth of the 140 client companies polled by Hewitt had more than 90% of their participants enroll online. The high volume may be due in part to similarly high levels of satisfaction. Hewitt’s data shows that 93% of employees enrolling for benefits online were satisfied with the overall enrollment process, and 96% were satisfied with the ease of use and time it took to enroll.

Not surprisingly, the Internet’s rise to enrollment prominence has had an adverse effect on other channels. Hewitt found the number of companies that eliminated paper confirmations of enrollment increased 74% in 2003. In addition, only 4% of participants enrolled through interactive voice response (IVR) and 19% through call centers, compared to 8% and 23%, respectively, for the two methods in 2002.

With online enrollment, Hewitt also found companies offering employees more educational content and enhanced decision-support tools, such as health plan comparison charts, flexible spending account estimators, health plan cost calculators and provider information. “Smart companies recognize it’s not enough to offer a Web option to drive paperless enrollment and improve efficiency; they must provide value-added services and tools to drive Web traffic, enable self-service and support consumer-driven strategies,” noted Maureen Kincaid, Hewitt’s Health Management practice leader in a news release.

Employees have apparently taken notice and value and use these tools to aid in their decision making. Sixty-two percent of participants noted that the health plan cost calculator tool helped them to consider at least one plan different from their current plan, and 32% said that, based on the information in the tool, they would likely choose a medical plan different from their current one. Also:

  • 66% said the health plan comparison chart prompted them to consider a plan different from their current choice
  • 55% used the health plan comparison tool to make their final enrollment decisions
  • 51% said that the tool helped them gain a better understanding of plan changes
  • 27% said the tool influenced them to likely choose a different plan.

“Online tools are a must-have for all employers, especially those who need to drive employee behavior change and enhance consumerism to advance emerging health care strategies,” added Kincaid. “Employees have more skin in the game than ever, and employers are working hard to provide the information and decision support necessary to empower them.”

Compliance January 26, 2004

S Corp ESOP Abuse Window Closed

January 26, 2004 (PLANSPONSOR.com) - On Friday the Treasury Department and the IRS issued a ruling to shut down what the agencies described as "abusive transactions involving S corporation ESOPs."
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>An employee stock ownership plan, or “ESOP,” is a type of retirement plan that invests primarily in employer stock.   Congress has allowed an “S corporation” to be owned by an ESOP, but only if the ESOP gives rank-and-file employees a meaningful stake in the S corporation.  

>According to a Treasury Department news release, when an ESOP owns an S Corporation, the profits of that corporation generally are not taxed until the ESOP makes distributions to the company’s employees when they retire or leave the job – an important tax break that allows the company to reinvest profits on a tax-deferred basis, for the ultimate benefit of employees who are ESOP participants.

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>However, Revenue Ruling 2004-4 makes these “listed transactions” for tax-shelter disclosure purposes, thus shutting down transactions that move business profits of the S corporation away from the ESOP, so that rank-and-file employees do not benefit from the arrangement. The news release notes that the ruling prohibits using stock options on a subsidiary to drain value out of the ESOP for the benefit of the S corporation’s former owners or key employees.

“Congress recognized the potential for attempts to circumvent the rules and specifically authorized Treasury and IRS to prevent it. This notice does just that, imposing a 50% excise tax on the option holders in cases where rank-and-file ESOP participants are deprived of the business profits,” stated Treasury Assistant Secretary for Tax Policy Pam Olson.

You can read MORE about the ruling at http://www.treas.gov/press/releases/reports/js1114attachment1.pdf

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