Perspective: Tough Times, Tough Choices

The impact of health care law on the future of qualified retirement plans.

Speculation abounds over the financial impact of the new health care legislation. Despite the guesswork, one thing is certain: there is an immediate concern among businesses—especially smaller ones—that health care costs will increase.

In times of financial uncertainty, it is not uncommon for businesses to tighten their belts and purse strings when it comes to employee benefits. For companies with limited budgets, a belief that costs will go up in one area (health), may often trigger a freezing or decrease in another (retirement plans). Given this situation, retirement plan advisers should understand that an important opportunity exists to help employers and participants navigate the road ahead.

As a first step, there are several plan design considerations an adviser may want to review with a sponsor to help address any potential budgetary limitations on the retirement plan. For example:

  • The sponsor may want to consider making its matching or other plan contributions “discretionary.” If economic conditions aren’t favorable, the sponsor has the flexibility to reduce or forego discretionary contributions. If the year is better than anticipated, contributions can be made after the end of the plan year when the true company results are known.
  • A sponsor may decide to review and restructure the participant accrual requirement provisions of the plan. This might result in not rewarding terminated participants or active participants with less than 1,000 hours of service during the plan year, if such changes are permitted under terms of the plan document.
  • Similarly, the sponsor may choose to review the eligibility and vesting provisions of the plan. If the company is experiencing high turnover, it may want to adjust the plan design, within ERISA limits, to reward only those employees who are long term.

The result, ultimately, is to help a sponsor find solutions that can help keep their plan viable and avoid the more unfortunate result of terminating it altogether. To that end, advisers should revisit the goals of the plan with the employer and review the plan design to see if changes can and should be made to help achieve those objectives. For plans subject to ERISA, care of course must be taken to ensure any changes comply with the law.

Beyond the sponsor, a separate step exists for those advisers working directly with plan participants. Reviewing and discussing individual retirement goals will be essential if changes to plan benefits are made or expected.

Strategies and topics to consider at the participant level include:

  • Use of online calculators and other resources to project retirement benefits. If there is an adjustment in the employer contribution to the plan, participants should re-run their projections based on the new employer contribution level.
  • If the employer matching contribution is changed, participants will need to ensure they are deferring enough to receive the maximum employer match.
  • If the plan sponsor reduces or eliminates matching contributions, the participant should not lower or suspend deferrals. They may want to consider an increase in deferrals to make up for the lower employer contributions.
  • Consider utilizing the Roth contribution provisions of a plan, if applicable. Although, the immediate tax benefit will not be realized, future tax payments may be eliminated for the earnings on these contributions.
  • Have participants think twice about taking a loan. If the employee terminates service and the loan defaults, this will impact current taxes and long term retirement goals significantly.

A key message an adviser should communicate to plan participants is to keep their eye on long term goals. Any elimination or reduction of current deferrals can have a long term impact on their retirement success. Helping a client stay focused and reviewing their potential options in this environment can certainly increase an adviser’s value.

Tough times call for tough decisions. Both plan sponsors and individual participants will be looking for help with their retirement plan goals in light of recent law changes on health care. Retirement plan advisers have a clear opportunity to reinforce their client’s goals and help them maintain the course.


Robert M. Kaplan, is Vice President and National Training Consultant for ING’s U.S. Retirement Services. In this role, he leverages his 30 years of experience in the retirement industry to help educate a variety of ING stakeholders on complex regulatory topics, plan design matters, administration and sales strategies. Robert is a member of various retirement services organizations and a frequent speaker at industry events, conferences and meetings.

(This material was created to provide accurate information on the subjects covered. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation. These materials are not intended to be used to avoid tax penalties, and were prepared to support the promotion or marketing of the matters addressed in this document. The taxpayer should seek advice from an independent tax adviser.)