Employee Pensions & Benefits

Overcoming Obstacles for Healthy Plans

With an aging population living longer than ever anticipated, pension and other post-retirement benefits have become quite costly and may need to be reconsidered. At the same time, health care and other benefits are more expensive each year, adding to the problems employers face. While the private sector has shifted some costs to workers, the public sector is subject to constitutional, statutory and regulatory provisions that limit its ability to change benefits. Both the private and public sectors must find ways to make benefits programs sustainable, attractive to employees and compliant with complicated constitutional, statutory and regulatory requirements.
 
Changing benefits for new hires will help in the far future, but that won’t help address the costs associated with the huge class of vested workers and the growing number of retirees receiving benefits. Achieving better returns on investments could help fund benefits programs, but higher returns aren’t guaranteed and likely won’t be sufficient. As a result, employers and the Legislature are attempting to modify public and private plans. Employee groups are fighting back, filing litigation to prevent them. However, the situation is not all doom and gloom. Employers are achieving some success in court and many are attracting and retaining workers with impressive benefits offerings that enhance productivity and worker satisfaction without breaking the bank.

Focus on Public Benefits

A dialogue about California's public employers and employees achieving sustainable employee benefit plans using the legal options available.
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The Future of Pensions

 Public and private employers are facing significant challenges as pension costs increase exponentially and pension fund investment earnings dwindle. A larger population is living longer, requiring longer pension payouts to a growing group of recipients. Pension plans simply weren’t designed to cover so many for so long, and the pressure increases as baby boomers retire.
 
Public sector employers are especially impacted by strict rules limiting their ability to modify their pension plans. Cities and special districts are overextended, forced to cut services to the public, hire fewer employees, and put off needed improvements to pay pensions and other post-retirement benefits. Many have gone bankrupt. Throughout the U.S., and especially in California, public pensions have become unsustainable. Major changes are needed. But what can be done beyond raising taxes and further cutting services?
 
Two 2016 California cases addressed public pension rights, vesting rights and whether and to what extent pensions can be altered. In the Marin County Employees’ Retirement Association case, a California appellate court ruled that future pension benefits of current public employees can be modified so long as employees retain the right to a reasonable pension. The court found that while public employees have a vested right to a pension, that right is not to a fixed or definite pension but to a reasonable pension. The case is now pending before the California Supreme Court. If upheld, the ruling will signify a massive change in how pension reform measures will be crafted, evaluated and implemented. The court in the Cal Fire Local 2881 case held that the elimination of “air time” — the ability to purchase service credit that was not connected to actual work — for all employees did not constitute an impairment of a contractual right because it was not a vested right. The Cal Fire case is particularly interesting in that it adopted the Marin analysis, concluding that employees had a right only to a reasonable pension. The California Supreme Court will also be hearing this case.  
 
These cases demonstrate a shift in how courts evaluate a vested pension rights claim, taking into consideration the viability of the retirement system and the ability of local governments to make modifications that are reasonable — so long as there is no substantial impairment of a vested right.  
 

Health Care and Related Benefits: Issues, Challenges and Trends

As health care and related benefits plans become increasingly expensive and employees demand benefits structured to meet their specific needs, employers are looking for ways to give employees what they want while containing costs. Balancing these competing interests requires a high degree of creativity, and allowing employees a voice in determining benefits offerings can help to ensure plans meet their needs.

We are seeing a trend toward wider benefits offerings and customized options. For example, wellness plans are also in vogue — from gym reimbursements to in-office mindfulness, weight loss and exercise programs. But they raise concerns about employee privacy, voluntary participation and discrimination risks. As a result, wellness programs have come before the courts. The American Association of Retired Persons, or AARP, challenged the Equal Employment Opportunity Commission’s newly adopted rules governing wellness programs under the Americans with Disabilities Act and Genetic Information Nondiscrimination Act, which were intended to clarify the EEOC’s position regarding permissible incentives for participation. The court concluded that the EEOC failed to provide a “reasoned explanation” for its 30 percent incentives threshold and ordered it to reevaluate its regulations. Although there is uncertainty until a further ruling, for now, employers may continue relying on the EEOC’s rules.

Employers are facing a host of other challenges including ensuring benefits plans comply with IRS rules and structuring benefits programs properly to avoid significant tax liability for employees and employers. The best course of action to ensure the best plan with the least risk is to consult the insurers, and work closely with tax and benefits lawyers and financial advisers.

Focus on Public Benefits

A dialogue about California's public employers and employees achieving sustainable employee benefit plans using the legal options available.
Read More >

Attracting and Retaining Workers

 As employers strive to attract and retain talent, the most progressive ones are crafting out-of-the-box solutions. These include everything from providing on-premises game rooms, childcare and food establishments to creating customized benefits offerings to building corporate “cities” with offices, restaurants, food stores and employee housing. Overall, we are seeing a shift from cookie-cutter health care coverage to benefits aimed at meeting the needs of a diverse employee population and improving quality of life. Benefits can include flexible time and telecommuting, optional eye and dental care coverage, gym membership reimbursement, education allowances or student loan reimbursement and at-home elder care and on-premises health care and childcare facilities.
 
Wellness plans have become popular, including “mindfulness” programs focused on reducing stress and financial advisor services to help employees plan for retirement while meeting current childcare and eldercare needs. Companies like Facebook have seen the benefits of creating a true community culture. With employees living, working and playing together, they have achieved a loyal, happy workforce.
 
While most companies can’t build a community such as Facebook’s, they can — and must — rethink and redesign their benefits plans to attract and retain the best workers.

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David Allen

David Allen

Pension Consultant*

(916) 329-3688

Areas of Focus: Employee Benefits & Executive Compensation | Public Sector: Employee Benefits & Executive Compensation
Jeff Chang

Jeff Chang

Partner

(916) 329-3685

Areas of Focus: Employee Benefits & Executive Compensation | Public Sector: Employee Benefits & Executive Compensation
Marissa Morimoto

Marissa Morimoto

Associate

(951) 826-8277

Areas of Focus: Business | Employee Benefits & Executive Compensation | Public Sector: Employee Benefits & Executive Compensation
Susan Neethling

Susan Neethling

Of Counsel

(916) 329-3687

Areas of Focus: Employee Benefits & Executive Compensation | Public Sector: Employee Benefits & Executive Compensation
Isabel C. Safie

Isabel C. Safie

Partner

(951) 826-8309

Areas of Focus: Employee Benefits & Executive Compensation | Public Sector: Employee Benefits & Executive Compensation | Tax
John D. Wahlin

John D. Wahlin

Partner

(951) 826-8313

Areas of Focus: Business | Employee Benefits & Executive Compensation | Labor & Employment | Public Agency Labor & Employment | Tax | Trusts & Estates

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