When deliberations began regarding the first tax reform legislation in over thirty years, many raised concerns that tax reform measures would adversely affect retirement savings programs such as the 401(k) plan.  Now, as the tax reform proposals have become further vetted, the 401(k) approach to pre-tax retirement savings appears to remain intact and may actually survive “Rothification”.  The IRS also recently increased the 401(k) pre-tax savings contribution limit to $18,500 for 2018.  Despite the confirmed importance of retirement savings vehicles such as the 401(k) Plan, many eligible participants for these employer-sponsored programs do not enroll in the plans, fail to contribute as much as they could, or do not fully understand how to maximize their benefits or select their investment options.  Multigenerational employees also have different financial needs and perceptions, and receive communications differently.   Plan sponsors should take this opportunity, as passage of tax reform legislation appears imminent, to provide eligible employees and participants with an enhanced communications program touting the benefits of 401(k) plan participation.

What Enhancements Can be Made to Existing 401(k) Plan Communications?

As plan sponsors know, certain plan communications are required and are already provided to plan participants through specific channels such as direct mail or e-delivery.   These materials include summary plan descriptions, summary annual reports, and participant fee disclosures.  In addition, there may be safe harbor notices, 404(c) plan disclosures, automatic contribution notices, qualified default investment alternative notices, fund change notices, blackout notices, and perhaps even investment education or advice materials distributed to participants.  A re-occurring debate is that participants do not read, understand, or cannot even locate all of these materials.  Plan sponsors might be well-served by considering the following when enhancing their otherwise required communications:

  • Incorporate tools into a traditional communications program such as mobile applications that can deliver understandable information to those on-the-go, in short snippets, regarding the benefits of plan participation
  • Issue periodic email, text message or other digital/social media reminders regarding increasing savings rates during the year and how a percentage increase can impact retirement savings over time
  • Offer online short videos or podcasts (5 to 15 minutes) that explain 401(k) features and benefits in digestible segments
  • Provide generic plan enrollment assistance either through on-site meetings, video-conference or on-line software
  • Strategically time the issuance of communications well before the due date of a summary of material modification that will allow participants to fully maximize the benefit of a plan design change
  • Connect the messaging with relevant events (such as passage of new legislation; a corporate acquisition)
  • Consider a financial wellness program that can educate employees regarding their whole financial picture, including managing debt and how to allocate available compensation to employer-provided benefit programs

The foregoing suggestions are a starting point and should be tailored to the organization’s needs and employee demographics.  The idea is to develop a strategy that supplements the required communications, and does so in a brief and engaging manner without contradicting plan terms.  The messaging can also refer the employees back to the longer, required communications and documentation which might be located on a company intranet for easy access.  Further, these types of communications do not need to be personalized and should not include personally identifiable information, unless the mechanisms are fully compliant with cybersecurity policies including password protection and encryption.  Also, these particular communications should avoid being fiduciary or advice-oriented in nature.  Instead, the goal is to highlight, and educate employees regarding, the important plan benefits and encourage them to participate in a language they understand.  This approach can also be duplicated for other types of employee benefits (i.e., the ones that survive tax reform).

In a recent update to the IRS’ Questions and Answers on Employer Shared Responsibility Provisions under the Affordable Care Act, the IRS has advised that it plans to issue Letter 226J informing applicable large employers (ALEs) of their potential liability for an employer shared responsibility payment for the 2015 calendar year, if any, sometime in late 2017.  The IRS plans to issue Letter 226J to an ALE if it determines that, for at least one month in the year, one or more of the ALE’s full-time employees was enrolled in a qualified health plan for which a premium tax credit (PTC) was allowed (and the ALE did not qualify for an affordability safe harbor or other relief for the employee). The IRS will determine whether an employer may be liable for an employer shared responsibility payment, and the amount of the potential payment, based on information reported to the IRS on Forms 1094-C and 1095-C and information about the ALEs full-time employees that were allowed the premium tax credit.

In my blog last year “ACA Information Reporting: Ensuring Big Data Analyses Do Not Lead to Big Penalties,” the terms of a Letter 226J were still unclear, yet the imperative to establish an approach for reviewing and responding to these types of letters was forewarned.  If an ALE receives a Letter 226J from the IRS, the employer will have only 30 days from the date of the letter to dispute liability for a penalty payment.  With the holiday season and other year-end deadlines, preparing a response with sufficient detail will undoubtedly become a daunting task.  As provided on the model Letter 226J, employers that wish to dispute the liability assessment will need to:

  • Complete, sign, and date a Form 14764, Employer Shared Responsibility Payment (ESRP) Response, and send it to the IRS by the due date along with a signed statement explaining why the employer disagrees with part or all of the proposed ESRP,
  • Ensure that the statement describes changes, if any, the employer wants to make to the information reported on Form(s) 1094-C or Forms 1095-C,
  • Make changes, if any, on the Employee PTC Listing using the indicator codes in the Instructions for Forms 1094-C and 1095-C for the tax year shown on the first page of this letter,
  • Include the revised Employee PTC Listing, if necessary, and any additional documentation supporting the employer’s changes with the Form 14764, ESRP Response, and signed statement.

If the ALE responds to Letter 226J, the IRS will acknowledge the ALE’s response to Letter 226J with an appropriate version of Letter 227 (a series of five different letters that, in general, acknowledge the ALE’s response to Letter 226J and describe further actions the ALE may need to take).  If, after receipt of Letter 227, the ALE disagrees with the proposed or revised employer shared responsibility payment, the ALE may request a pre-assessment conference with the IRS Office of Appeals.  The ALE should follow the instructions provided in Letter 227 and Publication 5, Your Appeal Rights and How To Prepare a Protest if You Don’t Agree, for requesting a conference with the IRS Office of Appeals.  A conference should be requested in writing by the response date shown on Letter 227, which generally will be 30 days from the date of Letter 227.

Now is the time to consider a self-audit of 1095-C reporting, as well as organization of documents that may be needed to prepare a response and/or appeal to the IRS. If the ALE does not respond to either Letter 226J or Letter 227, the IRS will assess the amount of the proposed employer shared responsibility payment and issue a notice and demand for payment, Notice CP 220J.

Our colleague Michelle Capezza of Epstein Becker Green authored an article in Confero, titled “Managing Employee Benefits in the Face of Technological Change.”

Following is an excerpt – click here to download the full article in PDF format:

There are many employee benefits challenges facing employers today, from determining the scope and scale of traditional benefits programs to offer that will attract, motivate and retain multigenerational employees, to embracing new models for defining and providing benefits, while simultaneously managing costs. In the midst of these challenges is the wave of technological change that is impacting all areas of the workplace, including human resources and benefits. In recent years, many new technological tools have emerged to aid in the administration of benefit plans, delivery of participation communications, as well as provide education and advice. These tools often require collection of sensitive data or allow employees to provide personal information in an interactive environment, such as:

  • Benefits, HR and payroll software, and plan recordkeeping, systems
  • Online and mobile applications for benefits enrollment and benefits selection assistance
  • Social media tools and applications for benefits information and education
  • Online investment allocation tools, robo advisors, financial platforms
  • Telehealth and wellness programs

These and other advancements are a sign of the times. While they appeal to employees, reduce burdens on employers, and assist in driving down program costs, organizations must be mindful that cyberattacks on benefit plans and participant information have occurred and measures should be taken to protect against such data breaches.

Employers across all industries are deep in the midst of exciting but unchartered and fluid times. Rapid and unforeseen technological advancements are largely responsible for this dynamic. And while there is a natural tendency to embrace their novelty and potential, the reality is that these advancements are often outpacing our regulatory environment, our bedrock legal constructs, and, in some cases, challenging the traditional notions of work itself.

For employers, this presents numerous challenges and opportunities—from the proper design of the portfolio of the modern workforce, to protecting confidential information in an increasingly vulnerable digital world, to managing resources across less and less predictable borders, and to harnessing (while tempering the power of) intelligence exhibited by machines.

The time is now (if not yesterday!) to develop a long-term strategy to help navigate these current issues and anticipate the challenges and opportunities of the future.

The articles in this Take 5 include:

  1. Embracing the Gig Economy: You’re Already a Player in It (Yes, You!)
  2. AI in the Workplace: The Time to Develop a Workplace Strategy Is Now
  1. Best Practices to Manage the Risk of Data Breach Caused by Your Employees and Other Insiders
  1. News Media Companies Entering the Non-Compete Game
  1. Employers Dodge Bullet in Recent U.S. Supreme Court Travel Ban Order

Read the full Take 5 online or download the PDF.

Howard Gerver is a self-proclaimed human capital data geek.  His “day job” specializes in finding innovative and practical ways to save money by identifying “golden nuggets” mined from Big HR Data sets, such as claims and human capital data.  A lot of this work includes analytics, claim auditing and eligibility auditing.  His “nights and weekend” job focuses on helping clients leverage their HR, Benefits, Leave and Time & Attendance data to help improve compliance with the Affordable Care Act (Obamacare).   Throughout his career, he has focused on improving the financial performance of the Payroll, Human Resources and Benefits functions of his clients through advanced technology, process improvement and auditing. In his spare time, he researches new and exciting ways to use Big HR Data to address broader business issues vis-à-vis predictive analytics.

MC: How do you define Big HR Data?

HG: In my humble opinion, Big HR Data applies to the leveraging of “wide and “deep” HR data assets in conjunction with non-HR specific enterprise data as well as external, third party data. Examples of non-HR specific data include: sales, production output, production quality, customer satisfaction surveys and financial results. Examples of third party data include: consumer (e.g. household composition, home ownership, shopping, interests and hobbies), census, health rankings and competitors (i.e., the local labor market).

The key idea is to leverage these collective data sets to:

1) Better understand what has happened (analytics), and

2) Identify what is likely to happen (predictive analytics).

From a business perspective, Big HR Data can be applied to virtually any HR functional area such as talent management, employee engagement, and health benefits.

For example, Big HR Data can address important talent management questions, such as which candidate is likely to succeed? Or, which employees pose a “flight risk?” Regarding employee engagement, Big HR Data can be utilized to identify which employees are more likely to have higher levels of productivity and conversely, which employees are likely to have lower levels of productivity. This information can then be applied to creating budget estimates, for example. Lastly, in the context of health benefits, Big HR Data can be leveraged to identify which employees are likely to have ineligible dependents.  

MC: Which types of “golden nuggets” might an organization uncover by mining Big HR data sets?

HG: “Golden nuggets?!” Can I get some fries with that? In all seriousness, “golden nuggets” can be found in many places. To get the best yield, forensic, or CSI-type tactics need to be employed. Leveraging all data, including written information stored in filing cabinets needs to be included.

Example 1 – High Turnover

Case-in-point, while performing a turnover analysis for a manufacturing client, we initially zeroed in on locations with the highest turnover. Interestingly, it turns out 24/7 plants had the highest turnover. Upon further review, we discovered new hires working the “graveyard shift” had the highest resignation rates. The average “newly resigned” employee lasted only 8 weeks. Naturally, HQ sensed the likely suspects were either environmental, the “job” or local management. This was not the case, it turned out the root cause was never documented in any system.

So, what was the culprit? Drum roll please…During the exit interviews it was learned that these “newly resigned” employees NEVER worked the “graveyard shift” before; these employees had no idea how different the “graveyard shift was from their own day-to-day routine and the impact it would have on their family and social life. While each of these same people as candidates needed a job, they didn’t think through the lifestyle difference between working a traditional 9 to 5 job and a “graveyard shift” job. To remedy the problem, management improved the selection process which included adding a “do you have “graveyard shift”” experience question, as well as the inclusion of probing related questions during the interview process.

Net, net – management recognized the value and importance of a richer HR dataset. Moreover, the new owner (which was a private equity firm) enjoyed the productivity and financial improvements derived from these improvements.

Example 2 – Lowering Healthcare Costs

Another “golden nugget” example pertains to reducing healthcare costs (yes, that’s not a typo – Big HR Data can be used to save money in a transparent, immediate and recurring manner!). For example, a large employer with several thousand employees decided to confirm the eligibility of the dependents enrolled in the medical plan. In spite of the compelling ROI, management sensed the audit would be disruptive and costly. Rather than require 100% of the employees to submit supporting documentation, management sensed there would be a way to leverage its HR and claims data. Essentially, this data would be used to audit only those that made most sense to audit.

To bring the vision to life, we were hired to calculate a risk score for each employee and to stratify the population. Inputs to the risk score included two major categories 1) Demographic outliers and 2) Dependents whose medical/Rx claim costs were higher than the respective per capita costs for their dependent category (spouse, domestic partner, young adult, child). External, third party consumer data was also integrated. Employees representing all geographies, divisions and departments were included. “True” random employees were also added to balance the model. The results were stunning. Approximately 90% of the savings were realized simply by auditing 25% of the population. The “icing on the cake” was an interesting discovery. It turns out about 30 of the spouses had gastric bypasses. Ironically, gastric bypasses were excluded from the plan design. At $30,000 each, this drove the savings even higher!

Net, net – management became a strong proponent for Big HR Data.

Example 3 – Insider Threats

Cybercrime continues to be a material threat for ALL employers. Basically, no firm is safe – even from its own employees! While employers have increasingly strengthened physical controls, fortified processes, updated data security programs, and provided employees with requisite training as an effort to mitigate enterprise risk, cybercrime continues to be an area where employers simply continue to feel exposed.

To that end, the C-suite and the Board are under continuous pressure to make sure tangible and intangible assets are not compromised. Ironically, the same employees who are touted as the “number one asset” are under scrutiny. Here’s where leveraging human capital data assets in conjunction with enterprise as well as external, third party data comes in real handy!

First, please allow me to illustrate a realistic scenario. John, a loyal 12-year veteran of the company did not get the promotion he was counting on. Needless to say he didn’t get the big bonus either. In the short 12 years he worked there, John always got top reviews and got good bonuses. The word on the street was he was a strong contender. While his historical performance was solid, his recent results were off. John attributed his recent performance to stronger competitors and management’s unwillingness to make deals.

Much to everyone’s surprise, John abruptly resigned. To exacerbate the issue, not only did he take valuable clients with him (and millions of dollars in business), but he also took trade secrets and all the pertinent client data files. The sad thing is, part of the problem could have been avoided. Here’s how Big HR Data could have tipped off management that John was at-risk.

Using external legal data, management would have seen that John filed for bankruptcy earlier in the year. He also had a DUI just a few months earlier. A pattern analysis of his network usage also would have shown that he accessed folders that he never previously accessed. Moreover, his visits to social media sites, such as Linkedin and job sites including Indeed would have tipped management off that John was potentially, looking for a job.

Again, the use of data could have lessened the severity of what became a big issue. Imagine a world where Big HR Data in conjunction with legal data, network usage data and website visit data co-existed! While it would not change John’s promotability, management could have leveraged the data to then take appropriate measures.

MC: What types of systems might an organization need to organize and cross check their data to confirm it is accurate?

HG: Hmmmmm, those are two great questions! Let’s first explore the systems an organization needs. The answer varies based upon 1) the business question you’re trying to answer, and 2) the data that’s available. At a minimum, we only require a minimum amount of indicative data, such as employee name, address, birth date, hire date, department and title. We can then append third party data to get a more comprehensive understanding of each employee’s demographics, interests and even legal history (legal history includes arrests, bankruptcies, liens and judgments). Other HR and non-HR data as listed below can also provide value.

  • Applicant (e.g. previous addresses, work history)
  • Skills
  • Training
  • Time & attendance
  • Performance
  • Medical Claims (self-insured plans only)
  • Pharmacy Claims (self-insured plans only)
  • Workers’ Compensation Claims
  • Disability Claims
  • Retirement Elections
  • Stock Purchase Plan Activity
  • Voluntary Insurance Elections
  • 401(K) Loans
  • Production (e.g. sales, units produced, quality metrics)
  • Exit Interviews

While this may appear to be a lot of data, that’s the point! Big HR Data is by default, BIG. It is only when disparate data sets are linked that give real gems the opportunity to “pop.”   Ultimately, management will learn which data types have positive and negative affinities; this will enable management to only work with data that provides value.

The second question pertains to data quality. As everyone knows, it’s critical the foundation of the house is solid before the first and second floors are built. The same applies here. The first thing that comes to mind is the use of internal controls. Since many different datasets are likely to be involved, management should first take an inventory of each dataset. This includes taking a point-in-time record count by business unit and/or geography. This will help establish data compatibility. In the event there’s a data gap, either a replacement data set should be created or the gap needs to be accounted for in the analysis.

For employers that don’t have the requisite controls in place, “approximate math” could be used. For example, an employer embarks on a workforce planning exercise and the goal of the project is to identify future workforce gaps. A critical input is skills inventory data. A quick computation reveals the average employee has 10 different skills.   Management could then determine whether 10 skills “makes sense.” If it does, great! If not, management would need the employees to update their respective skills before the analysis started. Please note, in this scenario it would also be prudent for management to review sample employee skill inventories to make sure they’re current.

MC: How has the use of Big HR Data by organizations changed over the last five years and how do you see it being most useful to an organization going forward?

HG: Big HR Data itself has not really changed at all. What has changed is the mindset of the HR community. Whereas 5 years ago most analyses were limited to data that was sourced from one system due to system constraints as well as limited IT resources, today power HR users can do their own analyses by using intuitive data visualization tools.

Going forward expanded HR data sets will continue to be leveraged by best practice organizations. Given the pervasive use of analytics in every part of the enterprise, it will be “data or die” as the C-suite will no longer accept we don’t have the data or we don’t have the technology to access the data. Net, net – Big HR Data will continue to play a critical role in helping employers maintain a best practice human capital ecosystem.

Editor’s Note:  Proper analysis of Big HR Data can assist organizations in achieving cost-savings across a myriad of programs and departments.  It can also provide great insights into the composition and actions of the workforce itself.  As technology, and its usage, advances, it will be important for employers to monitor and comply with changing laws and regulations as well as ensure that any personally identifiable information is secured and protected.  Employers should also take care that they are not violating applicable laws, such as employment-related or privacy laws, when obtaining data and implementing decisions based on data analytics.

Growing a company from the ground-up can be immensely rewarding but also challenging.  With the proliferation of start-up companies in this Digital Age, the question is often asked how a business can grow from a handful of like-minded individuals with a common goal while maintaining its culture and staying in compliance with a myriad of laws that impact its operations and workplace.  On May 17, 2017, Epstein Becker Green’s TMT service team was delighted to co-host with WeWork Dumbo Heights (Prospect): When Jeans Meet Suits: Keeping Your Startup Culture & Staying Compliant with Workplace Laws.  Panelists Jonathan Truppman (Casper), Adam Greenberg (Warby Parker) and AJ Pires (Alloy Development) shared with us their insights as to what builds a best-in-class workplace.  My takeaways from the discussion are as follows:

  • Hire Carefully – It’s important to get to know potential hires, their character and personality, and whether they will share the common goals and mentality of the organization.  Specific skills for the job can be taught.  Try not to hire too quickly, if possible, before you have a sense that the person will fit in with the company culture. Once the organization has its defined culture and values, it will become easier to identify like-minded individuals to hire.
  • It’s OK to Hire the Over Talented – When trying to fill positions, even entry-level, think long-term.  The people that you bring into the organization should be people that you’d like to see grow with the company and move up.  They may be overqualified at first, but give them the skills and training they need to progress even further.  Nurture their ambition and their talents.
  • Create an Open Door – Create an atmosphere where employees feel comfortable speaking with senior management.  Not only will employees appreciate the feedback and guidance, but also, open communication can serve to address any employee concerns early on.  Empower employees to make good decisions with integrity which can help stave off workplace compliance issues.
  • Infuse Social Responsibility – There are many ways to give back to the community and instill philanthropic goals in employees.  Foster a do-good mentality, sponsor programs and allow employees time from work to volunteer.  Not only does this help the community, but it builds strong bonds and a shared vision among employees in the workplace.
  • Engage Advisors When Needed – In the ordinary course, it may become necessary to seek outside advisors, especially as the business grows.  It is helpful to do a gut check periodically to assess whether there are any changes in the law that can impact the business or workplace.
  • Maintain Levity – Try to have fun along the way!

It certainly makes a lot of sense to build a company culture of transparency and inclusion, where talents are recognized and promoted, and giving back is a shared value.  What is good for the human heart is most certainly good for the bottom line.

As I continue to follow developments regarding the future of work, I recently attended an event co-sponsored by Cornell/ILR’s Institute for Workplace Studies in NYC and the McKinsey Global Institute (MGI) addressing MGI’s report last Fall entitled Independent Work: Choice, Necessity and the Gig Economy. The report examines the increasing numbers of self-employed, freelance and temporary workers in the U.S. and Europe which are currently estimated to comprise 30 percent of the working-age population and rising.  The report notes that many workers have chosen this autonomous path as their primary means of income, while others follow it to supplement income, and yet others have no other choice and would prefer a traditional job with fair wages and benefits.   Many factors have led to the return to this pre-industrial revolution independent worker model including the recession and the emergence of The Digital Age as workers are more mobile and have increasing access to new technologies which transform how work is performed and goods and services are bought and sold.

The independent model of work is not without its critics.  Not everyone is capable of managing themselves as an independent business.  Many fear that this model is more appropriate for highly-skilled workers who have special skills and can manage multiple engagements which they have cultivated and that are well paid.   For the majority of entry-level or non-specialized workers, however, this model may drive down wages and leave many others unemployed. Further, it is unclear how independent workers will be protected from pay disparities, discrimination, work injuries, unemployment and how they will obtain benefits for such needs as health care, retirement, or disability.  Many have argued that employers have moved toward retention of independent workers to avoid employment and benefits legal responsibilities and erode the traditional employer-employee relationship and benefits.

Shifting worker models are also caused by advances in automation and will accelerate with the transformations that will be ushered into the workplace with artificial intelligence, machines and robots that perform many current jobs and will perform jobs of the future.   In a December 2016 report from the Obama administration entitled Artificial Intelligence, Automation, and the Economy, it was noted that while the industrial revolution led to the disruptions to the lives of many agricultural workers, the technological revolution has led, and will continue to lead, to disruptions for workers in all industries. This will also continue to impact the professions (e.g., financial services, education, journalism, sales, accounting, law and medicine).   The increased use of automation and the demand for highly-skilled workers and those capable of abstract thinking and creativity will result in the displacement of many workers who perform routine tasks and in lower-skilled jobs.  Further, it is only a matter of time before robots are built with the manual dexterity to perform physical labor jobs.  As society advances and deploys AI-driven automation, a re-thinking of worker models, our educational system and the social safety net is crucial.

With this confluence of events, it is imperative that swift policy action is taken to prepare for the transition that lies ahead and employers have an important role to play.   As we have seen with the passage of the Affordable Care Act and proposals for automatic payroll-IRAs managed by states or local governments, there have been movements afoot for several years calling for more government-run forms of benefits in the U.S. which lend themselves to portability without attachment to an employer, but these models are also controversial for numerous economic and political reasons and are under attack.  Policy makers  continue to put forth ideas to require employers and independent contractor agencies to contribute toward a system of portable benefits for independent workers which may include multiple employer programs, pooled associations, and various types of government funds. The shifting tides will also require individuals to be financially educated and to save in their own health, retirement, and other insurance type vehicles apart from any employer-provided benefits. Employers in all industries will need to contribute to these debates and should consider the following:

  • Develop a Workplace Transition Policy.  As employers manage multiple generations in the workforce from the traditionalists, baby boomers, Generation X, Millenials, and Generation Z, and  as society shifts to new models in the workplace, including use of AI-driven automation, impact on existing traditional-model workers should be carefully addressed.   Immediate issues to consider include proper management of employee reductions and retirements (including fair and reasonable severance and related benefits (including career transitioning and re-training assistance), incentives for transfer of knowledge between generations (which may require ongoing consulting arrangements or staggered retirements), guidance for younger generations managing older generations and/or cobot relationships (which may require leadership training or new models of management training which address the newly envisioned workplace), integration of flexible work arrangements and job sharing, and deployment of AI and workplace technologies (with commensurate training and accommodations for their use). Improper handling of these issues can implicate allegations of violations of various employment laws from age, gender and disability discrimination to interference with rights to certain employee benefits.
  • Pay a Fair and Competitive Wage.  The call for fair wages, including a rise in the federal minimum wage, is not new. As more of the economic burden will fall on individuals to not only afford to live but also to save for all of their needs including health care, retirement, and periods of unemployment without employer assistance, fair wage initiatives are imperative and provide one way for employers to contribute to the eroding social safety net for all workers.  If this can be combined with financial  wellness and literacy type programs, employers can play a significant role in assisting their workers understand and meet their financial needs.
  • Provide Employee and Independent Worker Benefits.  It is widely noted that the erosion of employer provided pensions has contributed to the retirement crisis. Further,  employer provided health care also continues to be under attack.  Employer sponsored programs that address retirement savings and health care benefits provide a crucial safety net for workers and should be maintained lest these needs fall on the government to provide in order to fill the void.  Policy makers are also evaluating ways to make these benefits more flexible and portable and these developments should be monitored.  Consideration should also be given to making these benefits available to independent workers, which would resolve many of the worker misclassification analyses as it relates to impermissible exclusions of eligible workers for plans.  Among the many other types of employer-provided benefits, additional benefits such as tuition reimbursement and student loan debt repayment programs will also assist workers to train for future job skills and ease burdens of existing debts.
  • Contribute to Pipeline Development of Workers.  Educational systems are in dire need of reform.  Employers should consider how to partner with high schools, colleges and universities for job training, internships, and research endeavors to prepare next generations for the future of work.  Thought should also be given to retooling the current workforce to obtain the skills needed for the marketplace.  Ensure that the pipeline of workers obtains the needed skills for future jobs.   
  • Carefully Deploy AI-driven Automation and New Technologies into the Workplace.  The increased use of machines, robots and AI in the workplace will lead to new legal questions concerning data privacy and security, workplace safety, and far ranging employment and labor issues as individuals are required to work with, or be displaced by, these tools.  Whether a worker is an employee, an independent contractor, or another yettobe determined classification, the co-working relationship between humans and machines has yet to be defined and will require thoughtful planning.

Businesses that have goods and services to sell will need individuals to buy them.  If independent work becomes more of a necessity than a choice, the social and economic consequences can be dire.  As businesses gain from the increased profitability that is promised by the use of AI-driven automation, impending tax reform, and shifting worker models, it is imperative for employers to contribute to the policy debates and find ways to contribute to the economic security of the individual workers.

Gene ZainoGene Zaino, a nationally recognized expert in the contract workforce market, launched MBO Partners to re-invent the way independent consultants and organizations work together. MBO Partners provides technology solutions and personal service that both simplify and expedite business processes for self-employed professionals including: incorporation, contract setup, billing, financial management, payroll, tax compliance, and health and retirement benefit programs. MBO Partners also provides access to the largest network of “engagement ready” enterprise companies, as well as portable benefits to independent workers.  Zaino is a major force in the independent workforce movement, committed to making it easier for self-employed professionals and their clients to work together.

The meaning of the “workplace” continues to evolve in the Digital (also referred to as the “gig,” sharing or on-demand) Economy. From shared workspaces, to the introduction of machines, artificial intelligence and robots into the workplace, traditional employer-employee relationships that we have known in our lifetimes are being reconfigured at a rapid pace. I caught up with Gene Zaino to explore some of his thoughts in response to the following questions regarding a growing segment of the workforce-the self-directed or independent worker.

How do you define independent or contingent workers, and are they one broad category or would you classify them into different segments?

MBO Partners defines independent workers as adult Americans aged 21 and over of all skill, education, and income levels who turn to consulting, freelancing, contract work, temporary assignments, or on-call work regularly each week for income, opportunity, and satisfaction.

The entire contingent workforce is a broad category. Anyone working in a nontraditional job – that is, outside a 9 to 5 desk job – could be considered a contingent, temporary, or “gig” worker.  But the ride-share driver you frequently see on the road faces different challenges than the independent consultant working for a major accounting firm, so it’s important to make distinctions between these groups when discussing issues like providing portable benefits and meeting their business needs.

How much of the American workforce is currently comprised of independent workers, and how do you think that will change in the next 5 years?

There are just under 40 million independents in the American workforce, which includes 16.9 million in full-time positions, 12.4 million who work part-time, and 10.5 million in occasional independent roles. Based on our latest State of Independence report – the longest running annual survey of the independent workforce in the nation – we expect the number of independents to grow to an impressive 48.9 million by 2021. By this time, nearly one in two people will work independently, or will have done independent work at some point in their careers. Suffice it to say, the independent workforce is rapidly growing and the workforce we knew even five years ago will look vastly different in another five years.

What do you see as the main drivers behind the rise of the independent worker?

The numbers and testimony from our annual survey show that independents overwhelmingly find independent work is a satisfying, and self-determined, choice. Both full and part-time independents say their career choices stem from a desire to have greater flexibility, freedom, control, and purpose. In terms of flexibility, 63 percent of independents cite control of their schedule as a top reason to work independently, and 59 percent say their top motivator is the increased flexibility independent work provided not only in their careers but across all aspects of their lives.

Forty-seven percent of full-time independent workers report making more money on their own than they would in a traditional employment setting. Specifically, three million independents earned more than $100,000 last year, a 50 percent increase from the two million who earned the same just five years ago.

Generationally, Baby Boomers now constitute 31 percent of the independent population, driven in part by the desire to supplement retirement benefits that are facing sharp declines over the next decade. But the independent workforce is also growing younger, millennials accounting for 40 percent which is higher than their makeup among the labor force at large. In contrast to Baby Boomers, Millennials see independence as an opportunity to get a toehold in the labor force and as a resume-builder.

What are the main needs of independent workers?

One of the major needs of independent workers is the ability to maintain a robust network of clientele for future work. MBO ConnectTM, considered the industry’s leading preferred talent network and direct sourcing product for engaging independent workers, is just one platform through which independents might find future projects and connections.

Like all workers, independents also need benefits to support themselves and their family, including retirement/401(k) and health insurance. Since those benefits are often employer-provided, it can be difficult for independents to find security working on their own. MBO Partners helps by providing access to group plans for its qualifying associates as well as by educating independents on how to acquire portable benefits.

Do you find that independent work is more appropriate for experienced workers in their field of expertise, or can those new to the working world successfully embark upon independent work arrangements?

The independent workforce is diverse – it includes Americans of all ages, skill, and income levels who turn to independence for income, opportunity and satisfaction. We’ve seen a growth in the experience level thanks to the continuing commitment of more seasoned workers primarily from the Baby Boomer generation. Many independents report getting work assignments because they offer a specialized skill that requires certification, special training, or education. This often means added experience in the form of years on the job.

However, millennials just entering the workforce also represent a growing percentage of the independent workforce – up to 6.76 million last year from 1.9 million in 2011.

Are employers in particular industries more inclined to engage independent workers currently and will this change in the next 5 years? 

As the workforce continues to change, employers across nearly every industry are engaging and hiring independent workers, and we see the flow between traditional and alternative work arrangements increasing in numbers and growing in momentum over the next five years. By 2021, almost half of the private workforce is forecast to have spent time as independent workers at some point in their work lives. As a result, savvy companies are already competing to become a Client of Choice for top independent talent. Forward-thinking companies are already thinking of the best ways to engage independent workers compliantly and efficiently, often using a company such as MBO Partners to do so.

Does the proliferation of the independent worker erode the promise of the so-called social compact or “model social safety net” or do you see ways that these workers can obtain retirement savings security, and other necessary employee benefits? 

The growth of the independent workforce has changed the way we think about providing employee benefits, and companies like ours have adapted to that change. MBO Partners has provided portable benefits to independents for over a decade, giving our associates access to the power of their group purchasing to access healthcare, disability and business insurance, as well as 401(k) options for retirement savings.

Moving forward, the government will need to take steps to help the independent workforce. This may involve further discussion of portable benefits, the creation of a new classification of worker to help independents work compliantly with clients, or something else entirely. MBO Partners is proud to work closely with top leaders in Washington and on Capitol Hill to remain a part of these vital ongoing conversations, now and in the new administration.

 

Editor’s note: As the workplace continues to change, employment arrangements will evolve.  It will become increasingly important for employers to monitor changing employment -related laws and regulations and to ensure that adherence is given to current laws, especially with regard to worker classifications, overall workplace management, employee benefits and immigration issues.   As the nature of the very workers retained to perform services changes in unprecedented ways, new ways of thinking about these issues and regulating them will surely come to pass.

 

By Michelle Capezza (Member of the Firm, Epstein Becker Green) and Howard Gerver (President, ACA Managed Services)

Big DataAs employers prepare the Affordable Care Act information reporting filings for the 2016 year that will be due in 2017 (notably the 1094/1095 B&C), the good faith standard of compliance, and the potential for inaccuracies, is no longer available.  In order to seek a waiver of penalties for the 2016 filings made in 2017, an employer will need to meet a standard of reasonable cause and no willful neglect.  With this standard, an employer must show that there are significant mitigating factors or the failure was due to certain events outside their control and the filer acted responsibly.  While “responsibly” remains subjective, the employer must be able to demonstrate that the same level of quality assurance and audit rigor that is applied to other governmental reporting must be applied to the 1095 and 1094 IRS reporting processes. Also, at this time, anticipate that the filings will need to be made with the government, and to the employees (and other recipients), under the regular schedule without extensions: (i.e., the disclosures to employees will be due the last day of January following the calendar year in which coverage was provided; forms must be filed with the IRS by the last day of February if filing on paper or March if filing electronically (which is required for employers with 250 plus returns)).

Failure to timely file the Forms with the IRS and provide them to employees can lead to significant penalties (for example, currently large businesses are subject to a penalty of $260 per return up to a maximum of $3,178,500, as adjusting in successive years); this is not tax deductible.

The following is a checklist of issues that employers should consider when getting ready for 2017 ACA information reporting:

  1. Understand the Big Data Environment. Using Big Data algorithms, the IRS has the ability, as it increasingly works in conjunction with other Federal agencies, to identify contradictory data submitted on both individual employee forms and across multiple employees, which can lead to audits, as well as enforcement of the individual and employer mandate For example, in the March 2016 Congressional Budget Office Report concerning the federal subsidies for health insurance coverage for people under the age of 65, the government has already estimated that 3 million people will pay the individual mandate penalty in 2016.  In 2014, 7.9 million taxpayers paid approximately $1.6 billion in individual mandate penalties.

Moreover, from 2017-2026-the government projects employer mandate penalties of $228 billion.  Thus, there is clear anticipation that revenue will be generated and violations will be ascertained through the information reporting filings.  As carriers continue to withdraw from key markets and continue to incur material losses (billions of dollars are owed to carriers by the Federal government) the need to quickly enforce the employer penalties is even greater so the government can reimburse payors and providers the billions that are owed.

Given 1) the multi-billion dollar employer penalty budget and 2) the billions of dollars that have been/will be paid vis-à-vis the individual mandate, employers should thoroughly review their 2015 1095-C forms data and provide on-going QA of their 2016 data to mitigate risk.

It is imperative that employers confirm the integrity, accuracy and completeness of their employee data including: collection and verification of social security numbers of employees and dependents (as applicable), waiver information, eligibility determinations, offers of coverage (1095-C, line 14) and employee status/safe harbor codes (1095-C, line 16)

Employers should also know where the data resides, how to extract it, and confirm that it is consistent with unique employee identifiers (e.g. SSN). In addition, ensure that the responses on the forms do not contain conflicting codes (e.g., an employee would not be made a qualifying offer (Code 1A on Line 14 of Form 1095-C) while being in their respective limited assessment period (Code 2D on Line 16 of Form 1095-C).  These are the types of inconsistencies that can trigger a red flag with the government. Clearly the applicable data should be reviewed early and often.

In order to ensure that 2015 reporting was accurate, employers should audit last year’s forms data.  This way, errors as well as the underlying root cause can be identified and remedied to mitigate future risk.  Employers should also adequately plan for and execute internal controls.  For example, employers should perform a Data Diagnostic to calculate the expected number of offers (either 1A or 1E on line 14).  The same should be done for Series 2 codes on Line 16.  This way the actual results can be compared to the expected results.

  1. Ensure Proper Worker Classifications. Misclassified workers raise many issues not only from an employment law standpoint but also an employee benefit plan standpoint.  For group health plans, a key requirement is properly defining full time employees and equivalents to determine if an employer is an applicable larger employer under the employer mandate and that the requisite number of full time employees and their dependents are offered qualifying coverage.  We are now in an environment where applicable large employers must cover the requisite 95% of full time employees or risk exposure to penalties (it was 70% last year).  Properly identifying which workers are actually the employer’s employees, in addition to their hours of work, is a critical step.   This gets even more complicated when the employer has workers through alternative arrangements such as relationships with staffing firms. It should be noted that a service contract does not override the common law test for making a determination regarding employer status.  An employer should consider a self audit of worker classifications.
  1. Monitor changes in the applicable guidance.

Draft Forms. The new draft information reporting forms include changes such as: (a) the eliminated from form 1095-C  the transition relief codes for 2015 regarding 70% coverage of employees as opposed to 95% and the exemption from penalties if the employer had  less than 100 employees–code 1l and Code 2I (for noncalendar year plans); (b) Line 14 has a new Code IJ—used if minimum essential coverage providing minimum value is offered to an employee and conditionally offered to a spouse but not dependents. A common conditional offer occurs when coverage is offered to a spouse only if the spouse certifies he or she is not eligible for coverage under a plan sponsored by his or her own employer or not eligible for Medicare.  If this code is used it can lead to a penalty because coverage is not offered to dependents. Code I K is used if qualifying coverage is offered to the employee, dependents and conditionally to a spouse.  If either new code IJ or IK is used-line 15 of the 1095-C must be completed, (c) Offers of COBRA following a termination of employment should be coded with 1H (line 14) and 2 A (line 16) whether or not COBRA is elected.  For COBRA offers after a reduction in hours, treat as an offer of coverage on Line 14 1095-C, (d) Line 15 instructions clarify that the employee required contribution for Line 15 of Form 1095-C is the employee’s share of monthly cost for the lowest cost self only minimum essential coverage with minimum value offered.

Proposed Regulations.

a) Note that under proposed regulations issued July 6, 2016 regarding the premium tax credit, if an employee opts out of coverage and does not substantiate other coverage, this increases the costs of coverage for the employee when making an affordability determination and can mean that the employee was not offered affordable coverage.  This opt out payment must be added to the employee’s premium contribution and reported on the Form 1095-C.  If there is a conditional opt-out where the employee provides substantiation of other minimum essential coverage for the employee and their tax family (for example through a spouse’s plan but not individual coverage through the Marketplace) at least annually, this will not increase the cost for the affordability determination. The comment period on these regulations has just ended so it will be important to monitor any changes in final rules. Under transition rules, these rules will be effective with the 2017 plan year for opt out programs in effect prior to 2016.

b) In Proposed Regulations issued July 29, 2016 under Code Section 6055 and relating to the Form 1095-B and 1095 C part III, it is worth noting that if the employee is covered by multiple plans providing minimum essential coverage by the same sponsor, reporting is only required by one of the plans.  These rules apply month by month per individual.  Therefore, if for a month an employee is enrolled in a self-insured health plan and HRA by the same employer, the employer only reports one type of coverage but, if the employee drops coverage under the health plan, the employer reports coverage for the HRA for the remaining months.  Also reporting is not required for supplemental coverage where the employee is already covered by minimum essential coverage for which reporting is required or through Medicare, TRICARE or Medicaid.

  1. Ensure Accurate Names and Social Security Numbers.
  • Employers should remind employees to report any name changes due to life events such as marriage or divorce to both the Social Security Administration and the employer.
  • Employers should establish procedures for securing Forms W-4 and using that information to prepare forms W-2.
  • An initial solicitation must be made for a correct SSN when completing the information reporting requirements unless the employer has the employee’s SSN and uses it for all transactions with the employee.  When an employee begins work, it is usually considered an initial solicitation with completion of a Form W-2, W-4 and I-9.
  • When the employee’s SSN is missing or incorrect after the initial solicitation, the employer will generally need to conduct annual solicitations for a correct SSN and there should be a process for re-solicitation of required information. SSN solicitations are also made at time of an open enrollment.

The July 29, 2016 proposed regulations noted above provide that an employer acts responsibly if it engages in proper solicitation of SSNs which includes an initial and 2 subsequent annual solicitations (i.e, the first annual solicitation being within 75 days after open enrollment and the second by the December 31st of the following year). Employers should retain employee responses in employer records and note that solicitations were made.

  1. Corrected Returns. It’s worth commenting that in addition to getting ready for 2017 filings, there may be some clean up required for the 2015 forms that were just filed earlier this year.
  • Errors could be identified by an IRS error message, internal audit or by an employee.
  • A corrected return corrects an inaccurate return (such as Form 1095 B/C) or transmittal (1094-C) that was previously filed and accepted (with or without errors) by the IRS.
  • If a transmission or submission was REJECTED by the IRS-then a rejection requires a replacement -it is necessary to replace all records in the transmission or submission that was rejected.
  • Correcting errors is part of the good faith effort to file accurate and complete information returns.
  • Employers should have an internal review process to ensure correction of forms will not be necessary.
  1. Record Retention. It is important to document and retain proof to substantiate responses on the ACA information reporting forms, and, record retention policies should be updated to include ACA information reporting records.  Among the records employers should retain are (i) records of employees who were provided with an offer of coverage and corresponding dates, (ii) eligibility methodology and determinations, (iii) signed waivers or opt out forms, (iv) SSN solicitation records, (iv) controlled group determinations, (v) participant communications, (vi) affordability calculations.
  1. Marketplace Notice and IRS Penalty Notice. For the Marketplace Notices which some employers started to receive in early July, note that these are not the IRS Penalty Notices for employer mandate penalties which may start to be issued later this year.  The Marketplace Notice can be issued to large and small employers.  It is a notification that the particular employee purchased coverage in the current year and received a subsidy.  An employer has 90 days after the date of the notice to appeal and claim that the employee should not receive the premium tax credit.It is especially important for large employers to check records to determine if this employee was offered qualifying coverage, that the employee was properly classified and then to determine if it is necessary to challenge the employee’s receipt of the subsidy because this could be a trigger for later receipt of an IRS penalty notice.Therefore, thought should be given to setting the record straight and preparing defenses to a potential IRS penalty notice.  If the employer wins the Marketplace Notice appeal, the employee must pay back the subsidy received or offset any tax refunds.  The Marketplace appeals center will issue the decision.  An IRS penalty notice will indicate that the IRS believes the employer did not offer qualifying coverage during the prior year.  Employers will have a chance to respond and appeal the IRS penalty notices.  It is important to establish an approach for reviewing and responding to these notices.
  1. Corporate Transactions. In the merger and acquisition context, be mindful of representations and warranties regarding ACA compliance and information reporting requirements.  Diligence could include review of a sample of the forms that were filed by the target to assess whether they appear to have been completed properly, looking for incomplete or inconsistent codes on the forms, and anticipating potential liabilities.  Consideration should be given to factoring in potential penalties to purchase prices and escrow arrangements. A best practice is to perform a 1095-C and 1094-C audit during the due diligence process.
  1. Fiduciary Responsibility and Governance.  Health and welfare plans are subject to ERISA and the plan fiduciaries should ensure that they are maintaining these plans in compliance with applicable law, meeting the applicable reporting and disclosure requirements, and prudently selecting and monitoring those that assist in meeting these responsibilities.  Consideration should be given to enhancing fiduciary governance procedures, such as benefit committee guidelines and health plan administrative procedures to include ACA information reporting duties, if not done so already.
  1. Establish an ACA Information Reporting Team.  ACA compliance has many facets, and information reporting is a complex requirement.  Consideration should be given to designating a specific individual or team to address these disclosures. It is important for these individuals to examine data collection and integrity issues so that any mistakes from last year are not repeated.  Quality control and data privacy issues should also be addressed.  As part of their mission, the ACA Information Reporting Team should make on-going QA an embedded part of their process.

The ACA Information Reporting Team should also perform a 1095-C audit (and 1094-C audit) to make sure information was accurately reported. Employers should audit last year’s forms data.  This way, errors as well as the underlying root cause can be identified and remedied to mitigate future risk.  Employers should also adequately plan for and execute internal controls.  For example, employers should perform a Data Diagnostic to calculate the expected number of offers (either 1A or 1E on line 14).  The same should be done for Series 2 codes on Line 16.  This way the actual results can be compared to the expected results.

Consideration of these best practices and implementation of same will make a difference when completing the Forms and defending the responses in an audit or an appeal.  For more information regarding IRS reporting best practices and how to mitigate penalty and public relations risk, please visit www.ACAIRSbestpractices.com.

As the employer-employee relationship and the meaning of a “workplace” continue to evolve in the “gig” (or “sharing” or “on-demand”) economy, a model of portable employee benefits, which are managed by mobile workers themselves, is gaining appeal. This employee benefits approach is not currently intended to replace employer-provided benefits for all workers but rather to fill a gap for those who may work independently as contractors or as temporary employees, do not have access to workplace benefits, or move from employer to employer quite frequently. Development of such a model, however, calls into question the future of the employer-provided system of employee benefits, which has been under attack in recent years.

As a result of the demise of the employer-provided pension plan and the rise of participant-directed savings plans, workers have already felt the movement away from the paternalistic approach to retirement benefits. This development has not been without controversy, as exemplified by the debates regarding participant savings rates, education regarding investments and fee transparency, and the U.S. Department of Labor’s (“DOL’s”) fiduciary rule regarding investment advice.

Also, on the health care front, the Affordable Care Act has provided a platform for workers to obtain their own individual health insurance in the Marketplace, either through choice or necessity, and the tax benefits of employer-provided health benefits are being threatened in tax reform initiatives. With the implementation of consumer-driven designs, employees are also managing their health spending and insurance choices.

These changes in benefits design and access to employer-provided programs, as well as the rise of the mobile workforce, have provided a foundation for further movement toward portable benefits. This movement continues to manifest itself in several ways, including through:

  • President Obama’s call for portable benefits programs. In his fiscal year 2017 budget, President Obama called for the development of programs to provide grants to states and nonprofits to design ways to provide retirement and other employee benefits that can be portable and accommodate contributions from multiple employers. In addition, he called for legislation regarding open multiple employer plans (“MEPs”) among unaffiliated employers to allow for pooled plans and continued contributions when employees move between employers participating in the same MEP. He also proposed requirements to allow part-time workers to participate in plans and measures for easier rollovers to plans. These initiatives would build upon earlier proposals for automatic payroll individual retirement accounts (“IRAs”) and other tax credit initiatives to small businesses.
  • Automatic payroll IRA programs and other alternatives. For employers that do not sponsor any retirement savings plans, there is increased momentum for automatic payroll IRAs. To date, at least five states (California, Connecticut, Illinois, Maryland, and Oregon) have enacted legislation that will require certain employers that do not sponsor a retirement plan to enroll employees automatically in a state-run IRA program. New Jersey and Washington have approved retirement marketplaces for eligible employers to shop for retirement savings programs, and many more states are considering alternatives, including state-run IRAs and MEPs. These initiatives follow guidance from the DOL facilitating such efforts (including parameters for state-run IRAs to avoid being subject to ERISA) and complement the U.S. Department of the Treasury’s guidance regarding myRA accounts, as well as President Obama’s agenda. Other legislative proposals include mandates for contributions to plans run by third parties or the federal government. Laws in this area will continue to evolve.
  • Portability policy advocates. In “Common Ground for Independent Workers,” an array of businesses, labor organizations, venture capitalists, and other stakeholders in the gig economy have called for policies to ensure a social safety net for all workers. This past May, Uber was among the first employers in the gig economy to come to agreement with the Independent Driver’s Guild, which is working on ways to offer its members a range of portable benefits. Retirement Clearinghouse (“RC”) has advocated for auto-portability plans that move retirement savings assets automatically with workers as they switch jobs. RC has requested an advisory opinion from the DOL to permit negative consent, which would allow plan account balances to roll automatically into a new employer’s plan.

What Employers Should Do Now

In the race for talent, it is important for employers to consider their own philosophy concerning employee benefits and the types of programs that they desire to offer their workers, whether full time, part time, contingent, or otherwise. It is also necessary to assess compliance with any programs that may be mandated by changing laws. In this evolving landscape, an employer should:

  • examine its organization’s workforce and determine which benefits programs are desirable to attract, motivate, and retain these workers in a competitive marketplace;
  • identify any gaps in benefits offerings and consider how to fill those gaps;
  • monitor legislation affecting employee benefits and applicable compliance requirements; and
  • determine whether its organization is subject to laws that will require it to comply with certain government-mandated programs when no applicable benefit program is otherwise offered by the employer, and decide whether it is instead desirable to establish, or expand coverage under, an employer-sponsored plan.

A version of this article originally appeared in the Take 5 newsletter “Five Trending Challenges Facing Employers in the Technology, Media, and Telecommunications Industry.”