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A report covering health care plan design and legislative changes Volume 51, Number 2
Federal Rule Allows Employers To Cut Health Care Benefits For Older Retirees
The U.S. Equal Opportunity Commission (EEOC) issued a final rule on December 26, 2007 that would allow employers to continue what it calls the longstanding and common practice of providing more generous health care benefits to younger retirees than to retirees 65 and older who qualify for Medicare, without violating the Age Discrimination in Employment Act (ADEA).
"Implementation of this rule is welcome news for America's retirees, whether young or old," said commission chair Naomi C. Earp. "By this action, the EEOC seeks to preserve and protect employer-provided retiree health benefits which are increasingly less available and less generous. Millions of retirees rely on their former employer to provide health benefits, and this rule will help employers continue to voluntarily provide and maintain these critically important benefits in accordance with the law."
Cafeteria Plans Provide Tax Savings And Flexibility
Section 125 "cafeteria plans" can help business owners and employees alike trim considerable sums from their tax bills. Under Section 125 of the Internal Revenue Code, workers are permitted to withhold a portion of their pre-tax salaries to pay for premium contributions to employer-sponsored insurance plans and to cover qualifying unreimbursed medical and depen-dent care expenses. Because Section 125benefits are not subject to FICA or income taxes, cafeteria plans can help employees lower their taxable income, while reducing the payroll and workers compensation tax liabilities of their employers.
The dependent care FSA allows employees who pay for childcare or eldercare services to save money up-front, rather than waiting to claim a deduction or credit on their tax returns. Heads of household and married couples are permitted to withhold up to $5,000 annually of their pre-tax earnings to pay for dependent care services that enable them to work, look for work, or attend school full time. Qualified dependent care expenses generally include care for a child under the age of 13, as well as in-home or daycare services for a spouse or adult dependent incapable of self-care. Individual employees should, however, calculate whether they and their families would save more by paying for dependent care expenses through an FSA or by claiming the child and dependent care tax credit.
401(k) Reform Needed To Boost Retirement Savings
An examination of the experiences of other countries, especially Australia, may prove useful for U.S. policymakers as they consider ways to improve retirement savings rates among American workers, a white paper released by the nonprofit Retirement Solutions Foundation has suggested.
According to White, retirement savings in the United States have been eroded in recent years by a combination of the sharp decline in traditional pension plans and their replacement with the 401(k) plan, a retirement program originally intended to capitalize on tax breaks and add security to existing defined benefit plans—but not to be the sole source of retirement security.
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