As businesses struggle to come to grips with conducting “normal” operations in a “new normal” environment, the issue of cost reduction will certainly be on the table for many companies. One area that companies will likely be examining to reduce costs is employee benefits; here are some options for consideration:
Set priorities. In looking for ways to reduce costs for employee benefit plans, you should look first at programs that are high cost or underused. Typically, the highest cost programs are health insurance and retirement plans. Examining participation rates according to employee classification can provide you with insight on where you may be able to reduce costs without too much impact to your most valuable employees.
Restructure cash bonuses. Companies that have traditionally provided cash bonuses as lump sum payouts may now wish to opt for providing those payments through a nonqualified plan. Bonuses that are structured within a nonqualified plan are not paid out immediately; instead, bonus payouts are deferred for a specified period. Adding a vesting option can also work to stretch bonus payouts over time as well as help with key employee retention.
Eliminate employment taxes. Unlike bonuses and ordinary compensation, employer retirement plans are not subject to employment taxes. Restructuring bonus payments as employer contributions to a profit-sharing plan saves both employer and employee from having to pay their respective shares of employment taxes, with the entire amount going to the employee’s account. Companies may also wish to restructure early retirement incentives as employer retirement plan contributions. These strategies may require a board resolution or plan amendment as well as consideration of their impact on a company’s retirement plan nondiscrimination testing.
Consider an ESOP. In an economic crisis, cash flow is critical. If increasing sales or output does not deliver enough cash, a company can either convert a current 401(k) plan or create a new retirement plan to invest in an employee stock ownership plan (ESOP) for an alternate source of cash for the company. To determine if an ESOP is a viable option, you will need to have an independent valuation done and consult with an ERISA attorney on how to proceed.
Cut medical insurance premiums. Usually, the more employees that participate in a health care insurance plan, the lower the premiums. A company that offers three or more medical insurance options may be able to drive down premium costs by reducing the number of options available.
Reduce funding costs for retirement plans. Companies with plans that feature an employer match or contribution may be able to reduce expenses since the IRS allows you to make midyear changes under certain circumstances, including financial distress.
If you are interested in making changes to the benefits your company offers, either nowor at some point in the future, reach out to the experienced, responsive ERISA attorneys at Hall Benefits Law. We can help you review available options and make sure they are offered in a compliant manner. Call 678-439-6236 today.
Hall Benefits Law, LLC
