I0 212 9II 6 3 458 7 EB Statemen RI t ,-,, Summary o New nondiscrimination standards are proposed for all employee benefit ! |a Would process. Cafeteria Benefit For Plans Plans participants Still and Reimbursement beitOffered? will make Accounts them look at these plans as a place to employer-sponsored treatment Mr. Employee bbe enefits Chairman, of allowed .benefits employee Opension into t ais vcolor benefits. erage area --pleasure effective basic more USA Precise employers than employee to adouble nd appear effects efficient sbenefits pend the before are rate 9.5 which the difficult providers of perce 1961. Committee ntprovide ofto In ofwages 1983 pinpoint, today economic economic over and to caacnn count, oot programs protection helbut p butdidth asaknot against t: are wplace hattaxis loss aexempt thlimit e ofrationale or on income tthe ax for maximum deferred. duethetoemultimate plillness, oPresen yee btenefi payout. co dis tverage ability, changes They of cap of the November Treasury proposal), if adopted, would bring us to the park money for retirement quite clearly, or until the next job, rather than The sal security. general aries onanswer these must programs; be "yes" 29 perin centtheofinitial all employee years.benefit But, spending. out year however, as point provided compared Wewhere unemployment, estimate in because no tthis o t widespread hethat way indi ration or an viduals approximately retirement; ale incenti employee forhvaeve the benefit tofull different 5seek million pawas high ckage? tax career rates workers free.ofpatterns now return haveaand ndthese todifferent savplans e at I0 discuss security. million these theThe workers programs impa Congress ct reported of almhas othe st been to exa President's the ctly instrumental Census matchesBureau taxthe inreform wage their that and they pro devpelopment. os salary had als been structure on inFor employee a plan some of saving for special needs or emergencies. Based upon documented experience consequences o Voluntary as wages tax-exempt and pricesprograms, change could including be significant. health insurance, life packages. Wh Who available the iny pre Chan8e Receives omaximum vious Voluntary the to Th work But employment eEmployee possi them. Tax afor btaxable general le Treatment ce,Most Benefits? leand but vel. programs framework would 6.6 the ofWith million Benefits? President be TEFR including can affected Aeither befeels inset19 by vacation took 8out. more 2,theathe rules lump-sum Reagan Fortime, Congress over are proposal, sick distribution needed. 800,000 took time, another unions either These and or bemployee enefo its.productivity benefits The Empcommonly logain yee due Benefit included to employee Resein archsur psychological veys Instituthe te income has well undertaken being; tax system anal hasysis not Conclusion this means that employees will voluntarily set aside much less in these plans. hstep aving and insur to introduced draanstically ce up atochange lower $50,000, com their bined edu reimbursement cational plan limit assist accounts on awh ncaet could or above elimin be$5,000, aset te aside them. dental for were wand hichAoemployers, entitled com re enhancement other pad rehensi ing time to van el of an yeffect not of etvhentual eathe ssesses worked, Reag would ability aannuity. n the beare packa aito nterre reduction ge, toomanage laoften tionshi backed in work pincluded flexibility upforce ofbythe when csize onvers tto ax talkin and structure at code ions to 5andabout allow wit the theh been Theimnew poprrta ovision n£ rules . would For of em exa ca plmp use oylee e, some btenefi heplans t1s4 per fto ocllows enbe t disqu ofa wa patt alified sesern:andth basasi atlaries c act benefits uallspent y cov are er on Employee Salary Reduction Programs totalThecompensation insuran government ce and package beganvision building to meet insuran the a legal cneeds e, structure represent of a changing for theemployee work second force. benefits component. in provis any government Emplo Full individual. ionemployee timely yee choice ofstaff, Salary retirements; employee benefits. The plans indi Reduction Reagan cates benefits. willand The proposal as ProKrams continue average least Theasks four to Instit USACongress be rationales uemployer te attriasctive toaspends go for nonone pto rofit, the almost step those changes. further: nonpartisan 14prim percent arily Eacto h fully taxable all workers. benefitsThislike problem leave,is orparti thecularly 9.5 perbad cent forspent "conglomera on mandator tes."y provided first. The normal sequence: health, life, retirement, savings, and Statement On Defined These plans Benefit and Plans their approximately 8 million active participants would be 1921. Ninety-six The goal: per tocen protect t of all workers full-time and workers their dependents in medium against and largeloss firms of programs seeking represents research limitoThethe The to ofto Relike obtain vmaximum wages organizat aplease enue objdesire eSocial ctive and group Act ion employees annual tosalaries is of Secpurchase churity. laudatory, abased 19 nge benefit 78andlong-term onprovided advantages. meet in Together these one buWtchanging acan shington, programs, mu nfor ation crecei these h these te alwork vcehni poli acor Dca cby Count new force .lcnearly y. introducing work programs EBRI for needs. 43 on72does percent the per under an Those cent proposal ex not cise of section seeking of make whall tax ais t on from there. For an employer the single biggest determinants of when The Impact of the President's Tax Reform Proposal on Employee Benefits affectedneeded. by distribution changes and discrimination test changes. Maximum What is Retirement Income? income; on to use "excess" ha are the to ve reported provide arrangements health amounts.as economic insuran And, "employee for ce; the security. health 96 proposal benefit" per cost cent The strikes expenditures. management hresult: ave at lifenear those could insuran universal who still ce. would do The protection it hoard with Reagan the a The 401(k) AsEmployee of manytheas Retirement Internal 20 percent Revenue Income of Code. Security defined Thebenefit Act November of plans 197Treasury 4 gave allow recognition proposal for lump-sum would of employee employee recommendations benefit benefits for expenditures. will or be against provided For legisl others are ation profit thethe abilit incCome yongress , tax unionization, smay ystembe has considering, been and wver orky Before The contributions capped at 8,000 with an IRA offset could affect 5 percent of for reimbursement Media employees package reports of account would medium andtax government funded and the large first by discussion employer businesses; $I0 of an dollars generally indi growing vidual at protection lump the health same all these premium level for employees different for and $25 all multiple have distributions sa butvings oSince we ended Health for doneeds 1921 them. work their instead insuran by the toAs heirs providing Congress cmeayou of ke pro annuities. by have av vided aasking il has clear aheard, bleas attemp incenti the The pertinent part the ted Congress numbers vnew of estoproposal employment to en faare ccto ts ourage encourage require small, thwould atwould savings may but savings retirees modify for bear growing. andthe them. both on to capital first draw your And for As important. For example, the 5 percent spent providing tax-exempt health force size. The availability of benefits falls across the entire earnings United States Senate Committee on Finance participants in year one, with that number growing each year. decisions. of small businesses; and a very significant reduction in the demands placed all typesdefined-benefit ofof employee a familybenefit premium plans program canpaid makeby expenditures distributions the employer. together whenOn the aand vertotal aassume ge USdollar A that employers it value is of employees. funds aretirement insurance ccumulation 1983out time nearly and of and But be"until plans life for 5taxed. formillion sep insuran amany tsep aration aaThe ration cminimum employers eemployees initial from (16 from percent remployment ate. that were $10 employment" /have In $25 of eligible short, all at established propos earlier benefit the afor in l aAthese is ddi dministration ages. expendit premiu tunlikely ionprograms mures) topayment retirem toproposal and and redu only ethe 1.2 nt ce spectrum, but is heaviest for full time workers. Eighty-three percent of all July 19, 1985 Employers are still likely to offer these programs, but they are likely to upon saysThe the that spend government government there 5 peris cent has for anof generally: amount direct wages of expenditures andmoney salaries whichon that represents these wouldprograms. fartooexceed much the tax-favored revenue million is in all reimbursement cper ome less Empl tcaent x oyee actually that exempt. thanspent benefi might $3,500. accounts participated. NOTE: pro tsviding be The are 72paid orpercent Reagan tax-deferred effe accounts out A ctirecent veis proposals as either afor andsurvey retirement stream efficient other mandatory would placed of make purposes andthe payments providers orthis cafnumber pital ullywith design tbeginning aof oaxable; fccumulation very eligibles approach econom just ic low at nonagricultural coverage, wage but ashould nd salarthis y workers "floor"inrise 1983 over earnedtime, lessthe thanconsequen $25,000.ces for of cost play of a much the incentives. smaller role than some had contemplated. Due to the proposed in 1985 at 20 million. ver participation retirement programs y ounattractive. Voluntary (12income per rates, centand taplan x of-deferred that allcontinuation benefit it is programs intended expenditures). will be that introublesome. cluding plans only retirement, provide retirement capital se over retirement. curRetirement ioty. 12agreed percent InThis that an andisApril du Capital it taxed alwas tra 1985 upon cappropriate Accumulation k poli surve benefit cyy was conducted national payment; readilyby policy while eviden Hamilton cjust to ed provide by and under the Staff, 16 incentives taxpercent tre emplo atmen yeeto is t health insurance provision could be dramatic, with young and low wage restrictive New Nondiscrimination rules on access Standards to funds, employees are likely to use these plans Health Insurance tor ax penalty exempt. Defined-benefit ha accumulation, ve taxes workers willprotected plbe and an imposed. annuity long-term againsttaxloss disability treatment of income; plans remains represent constant the under third the benefits givenThelump-sum workers President's were found de distributions ciding tax to they be reform widespread. would upon package separa rather twoion 82 uld have percent of change cash, employment reported employee and theor cbeing benefits after ost ofcovered age insuran and 59 the and cby e Over 800,000 employer sponsored plans are now in operation in the private Dallas L. Salisbury _ President less. proposal. publiAs cShouldn't c policy noted omponent. Wage above, surrounding Everyone andEighty-two the salary Get newthem. The standards growth percen Same Thin_? twould could of all maca keufull-time sethemanynewworkers workers maximum toinbenefit lose medium certain rule and cI seompany 1c2. tor. Health This o The wanted health may Thirty-se Reinsurance agan seem toinsurance, ven propos encourage a minor is aper l the cent seeks 69 point, pri most per vare ate cent tobwidespread unarrow tdefined dollars bythecomp debate naat benefit nto ional yemployee supplement lover ifepoli pliansur the benefit. ns, cy ance, tax tSocial owith aen tion courage and 60 more Security ofpercent 50employee than per thecent use for of 40 for older workers being driven up. This is a proposal for a very Employee Benefit Research Institute Health Insurance abenefits types pply to of retirees; large large takes coverage firms numbers on while ahave much at which retirement other different time coverage significant or castecwould apital when design have athe ccumulation to perception chaexp ngeandwill plans toisneed meet that and to the be 32 50 million by of all com aO oci vper stream v an Since ilian yathe ctive pensions. of 1921 years workers payments participants. national thehave ForCongress rather full primary policytime Sixt has than has y-three health workers introduced lump-sum encouraged insurance per coverage cent distributions. nondis bothare ccoverage rimination is"pension" edefined ven more and While programs and contribution widespread, another lump-sum coveraand ge 20 significant change in national policy for 67 percent of those filing Approximately 63 million workers would have new income to declare were tax returns. contemplated. percent The have proposed disabilitynondiscrimination protection. Nearly tests half that oftreat all re all centunits retirees of a rules. percent percent requirements have They of wages secondary intended would and maketocoverage. sasome assure lariesplans that escape Thelike the addition benefits 401(k) taxationofless dependents ofas tax attr a ain result ctive centi andves to retirees of employers. govoluntary to more more distributions according o "capital liked to Cnot ensus areachaving cumulation" sBure tillautoallowed, surenact veys. programs. National the The Reagan world The Health of first pacemplo kage Insurance yto ee reverses generall benefits because y the is provide employer mcaurrent de upa plans, with over 27 million active participants. As many as 80 percent of the initial health insurance premium dollars taxed. The equity in the proposal is They controlled of thanfour would the pro receive primary vhighest ided group add retirement components. health significantly ofpacompanies id.insurance The income as Atodministration had one from thebecome emplo complexity these yeralmost progr wo proposal uldaof universal; ms. cause plan moPayments vmany es administration, and further large out companies of in these thand at employer than incentives. The doubles retirement President and this Its employee proposed number. may annuit beyaction .correc cSixty-nine hanges The t--inse would even chis ond percent assessment if provide totheprovide of fact tremendous allthatax tis savings long returns thatinstanding centives only forfiled unforeseen 5 employee to percent in 1983 roll participants in defined-contribution plans also participate in a hard to find. It makes no difference what the level of coverage is that you over the dollars into another retirement account and to withdraw the dollars would esc to complexity apes havehaplans vetotal plans been itself aretaxation. lose affected treated creates theirbyasAs tax-favored a loopholes. taxable tax youonwell health incstatus, ome know, Theinsurance. to objectives perception the even degree in situations has are thatthe laud contributions able, effect where all but of defined-benefit benefits direction oo Mandatory cgenerally ircumstan poli by cexpanding yces plneeds felt an. programs or that to the major be employers group including cevents hanged, that and like but must Social unions education, there bewere Security, included isacting no and t probabl eviden inresponsibly. Medicare, allcye plans retirement. in the workers and tax by have technical or what workpercent is needed. of the total premium the taxable amount represents. Other reality narrowing wover orkersone's were when areorentire not. coit eliminating vered. comes expe The c to The Reagan tedcontribution influencing goal retired pais ckage alife. wdecisions. orthy would and benefit The one, change proposal, but differenti nondis significant cin rimination als. short,tecrepresents hnica rules l woand rka Effects reform This pa compensation, of ckaTaxin5 genational thatEmployee long-term poli andcyBenefits unemplo will consequen yment be c curtailed. es compensation have been The evPresident aluated. represent pAnd roposes the therefirst that are Of all civilian workers, the Census Bureau found that 52 percent are The floor at $I0 and $25 is unlikely to cause a drop in provision. The fundamental is needed Frinse Should establish beBenefits Anythin_ ypoli ond cythe excchange. Escape ise May proposal. taxes All Taxation? for some benefit payments. It would establish Let The Other policy component. us Reagan voluntary takebeAdministration a moment changed These tax exempt toprograms tolook tells allow programs at provide us employee taxthat include incenti the the benefit vlife es rationale basicinsurance programs primarily levfor el against up what offortoprotection they expli $50,000, somehave citof c coontradi vered ctions: by these reducing plans. acc Of ess thoseto meeting capital ERISA accumulaparticipation tion funds while standards, expanding 70 main question? What if it rises? EBRI research indicates that as more and Defined- Reagan a demanded n Contribution $proposes 8,000 bylimit society to afor Emplo pply yer 401(k) onnondiscrimination aContribution nearly plans a uni ndversal Plans change standards basis. distribution to Ovthese er 25 rules. benefits. millionOn per the IRAs; proposed educational cent From How perceptions proposing retirement Mu are 1ch is 921assistance, is co to until vered Enough? nondiscrimin that achieve income 1ha 9by 81 ve dental the these fdri aa deliver irness, tion vCongress en yplans. insurance, .legislati tests growth, Workers expanded th vEight eatvision yand would debates -two wthe illsimplicity. insurance, cause tax percent sin aveincenti recent some less, ofvgroup pl es Wh ye aaans all and t rs, forlegal, tthey hat full-time national employee and co have also vand er *The views expressed in this statement are those of Dallas Salisbury and should not be attributed to the Employee Benefit Research Institute, its more of the insurance is taxable, more and more workers won't want it. come up at times in the current debate over tax reform and the tax treatment Since dependent These the sa average vings plans care. Deficit will US-- ANinety-six Reduction money de employers crease. purchpercent aspend Act se of and 4of 1984 per profit all cent said full-time sharing of many wagesprimaril ofworkers andthese salaries y in benefits withmedium on theirthese were and 27 workers benefits proposed all Between workers retirees infrequently. mayfirms 1921 toinnow beand with fact disqualified; recei 1982 1974 250 beve marked or the appropriate benefits more Congress ataxing employees distinct from for provided health these public change are insuran covered programs. inpolicy; cin entives cthat e byfor direction that for aSocial 67 plan. savings is perSecurity cfor ent as Andthey the and 76 of officers, trustees, sponsors, or other staff. Adverse selection will be most intense among younger workers. As a result, of employee benefits. million difficult began to provides programs. parti tighten tocipants value, higher and -- applying toproportional would narrow. nondiscrimin be dramati This benefits action was ally theto changed standards year low in and in whi to the moderate chthem terms thewould maximum of income the be percent Congress large ctaxpayers apital o firms Newac of tocbe umulation limits c those determine. have ause covered life the arewithout others proposed insurance; Theand Reagan a don't 70 con oncpercent ept proposal 71wh ha apercent tvof e can par it; offor tibe chave those and ular employee contributed endental c vested limits. ourabenefits ging insurance; earned to Ecaonomi pension mo taxation vless ement c and grothan wand th 2tis7o Dallas Salisbury is President of the Employee Benefit Research Institute, a nonprofit, nonpartisan, public policy research organization. Before joining distributions the cost of insurance and the taxation for all ofothdistributed ers will incre amounts. ase as the group declines in defined benefit that could be funded for and the maximum defined contribution Why percent Do o We Voluntary indi have Ha vidu vevision als, Employee tax-exempt care. and Benefits? for higher fringe income benefit retirees, programs 50 inpercent cluding ofparking, their not nonfunded $25,000 had difficult. been theinfairest assumed retirement 1983. To the alternative; extent to programs be that benefited these after may benefits be by tenadverse capital years createof to form asuccess acapital tion. nuisance wiformation, Therefore, tfor h government employers, and the capital accumulation programs, and on the benefits that can be paid EBRI he served in senior career policy research positions at the U.S. Department of Labor and the U.S. Pension Benefit Guaranty Corporation. This size. Over time, this could have dire consequences. This, at a time when the they These could without benefit cafeterias, changes be dropped. is an would taxed. excise merchandise require tax. A portion and the Thistravel plans ofwill unemployment to dis cause cbe ounts, rethought a further benefits are frequently andmovement are wouldtaxed. viewed require towards The asa Who addition, objective There Would be wand aiss,Affected the gener for combined apra l cby tiagreement cBenefit al limits, purposes, Taxonwere Change? why to all encemployers ourage reduced asand and muchfrozen. unions as possible. The established employee mandated therefore, What about requirements for economic actual benefit growth; for advan receipt? andcewould funding The add Social toofthe Security the complexity pension Administration of promise. employee statement draws heavily from research studies conducted, published, and copyrighted by EBRI. Congress is concerned about those without health insurance. The the numbers fourthjustcomponent. presented Spending provide anonindication these programs of the is total lessnumber than ofI benefit employee Contradi benefits new Congress tax Reagan ctions pl plan benefit legislation anningintrodu administration package unexplained. and programs ced of retirement would 1limits 984 and continued rather tax They why in planning all the 1974 might than government unemployment that onapproach simplifying make the trend, amount sense. chose for asandindividu do of it. toworkers' They most defined encourage As als. of might athe benefit compensation result, The them proposals mean"phase with that one far reported unfunded recentlypension that programs among newthat retirees depend in on 1981 the "56 corporate percent promise" of married and tax incentives. to could datebe some per for funded cenloss t"taxof for ofreform." wages benefits and the and The for maxsalaries, imum proposal lowerannual income for andaddition aand frequently health smallto floor business a they defined (or exist workers. thecontribution health for tax the couples gre workers out"aterof government and and ten families y42 ear expenditures percent forward that will aof veraging in inunmarried the somefuture will way be make retirees toaffected meet thiseconomi had redesign by cchanges income security a in long from the needs. term tax an 07/16/85 07116185 07/16/85 07 0 07 07 00 007/ 77/ 77/ //// /16 16 16 16 16 16 16 16 ///// 8///85 85 885 585 85 85 5 07 007 7///16 16 16///85 85 85 convenience of the employer. Discussion of these programs should not EMPLOYEE BENEFIT RESEARCH INSTITUTE l III K Stret't, N\V Suite 860 \Vashington, DC 20037/Telephone (202) 65'9-0670 07/16/85