In its report, “A New Benefit Platform for Lifetime Security,’ ERIC suggests that “employer programs alone cannot satisfy the life security needs of American workers in today’s highly competitive business environment.”
The Committee’s proposed structure would:
- Give employers an alternative method for providing benefits without the “entanglements” of traditional provider sponsorship.
- Complement and not require replacing the current system for those who find the current system more appropriate.
- Require new benefits offerings to be administered by competing Benefit Administrators.
- Provide that Benefit Administrators, in many respects, would assume the role of today’s plan sponsors and, particularly with regard to health care, would be organized on a geographic basis.
- Require employers and individuals to share funding of benefits.
- Provide a way for individuals to purchase coverage independent from an employer relationship.
Specifically, the report said administrators would compete with each other based on quality, design, and cost. To ensure that competition among administrators occurs on a level playing field and is transparent to consumers, a uniform national regulatory structure and uniform standards for measuring plan performance would be established by the federal government or assigned entity.
Under ERIC’s proposal, an employer could obtain the benefits for its employees or an individual could participate directly without employer involvement. The federal tax consequences for an individual accessing benefits would be the same whether the benefits were accessed individually or through an employer, according to the report. Contributions by employers providing coverage through an administrator would be tax deductible.
ERIC proposes that initially the benefits available through this new structure would include retirement (and short-term savings) plans and health care coverage. Life insurance, disability, and other benefits may be added to the structure later.
The retirement benefits proposed by ERIC include a Guaranteed Benefit Plan, a Retirement Savings Plan, and a short-term security account. The Guaranteed Benefit Plan would look much like a defined benefit plan, could not be accessed until retirement, and would require benefits to be paid out in the form of an annuity.
The Retirement Savings Plan would look much like a defined contribution 401(k) plan with an automatic enrollment and automatic deferral increase feature, with loans and withdrawals available subject to restrictions, and allow for participants to direct investments or have their assets professionally managed.
The short-term security account would consist of funds from an employer and/or individual accessible for a prescribed set of defined lifetime events. Unused balances at an individual’s retirement or at a specified age would be available for withdrawal without penalty for retirement or post-retirement medical expenses, according to the ERIC proposal.
Health care benefits under the new proposed platform would include Standard Benefit Plans offered by each Benefit Administrator available to all residents of each defined major medical market. Individuals could purchase health care plans independent of employment. The proposal includes a federal mandate that all individuals secure health care coverage, with a subsidy provided to financially disadvantaged individuals.
Other points of ERIC’s health care benefits proposal are aimed at providing health care cost and quality transparency and accountability, as well as incentives to individuals for healthy living.
ERIC believes its proposal will foster expansion of benefits to a larger base of the American population. Further, the Committee said in its report, the proposal is intended to foster innovation and creativity among employers and individuals, and shift fiduciary responsibility on entities that have expertise in benefits administration.
A copy of ERIC’s report can be downloaded here.
To request a hard copy of the report, e-mail your name, address, and telephone number to The ERISA Industry Committee to firstname.lastname@example.org.