They’re Yours, They’re Mine or They’re on Their Own: More On Employee vs. Independent Contractor

Previously, in Yours, Mine or Ours?, we examined the basics of “who” your  employees are for employee benefits purposes. We also discussed some of the adverse tax and business consequences that can befall employers who either don’t understand who their common-law employees are or attempt to treat their common-law employees as someone else’s employees. Hopefully, we have convinced many of you that it is better to understand and analyze these issues rather than assume that your outsourcing arrangement works for all purposes. Continue reading

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Yours, Mine, Ours: Are the Individuals Working for You Your Employees?

As the name suggests, “employee benefit plans” are for employees. However, in today’s increasingly outsourced economy, it is not always easy to figure out which of your workers are your employees for benefit purposes. A proliferation of staff-leasing, executive-leasing and co-employment arrangements all work to muddy the waters and raise the question of whether “these employees” are yours, mine or ours.  Continue reading

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How Is Liability-driven Investing Different?

By Jeff Chang

The more you read about what has been going on in the private sector (in the U.S.) and in the public sector (in Europe) with respect to pension plan investing, the more you come across the concept of “liability-driven investment strategy.” Although there are many ways to describe LDI, a good starting place is the notion that LDI attempts to manage plan assets and risks in relation to plan liabilities. By contrast, many pension plans, particularly in the public sector, still utilize a so-called “benchmark-driven strategy” – one which aims to equal or beat a pre-established rate-of-return on plan assets using a target asset allocation model (such as a 60 percent/40 percent portfolio). What are some other differences between these approaches, and how might they be important to the success of public pension funding, OPEB funding, and individual retirement planning?  Continue reading

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Avoid Big Surprises After You Retire – Like a Major Reduction of Your Social Security

There are two ways in which state and local government employees can receive a “rude awakening” from the Social Security Administration: Through the application of the Windfall Elimination Provision and/or the Government Pension Offset.

Because the loss of a significant or, for that matter, any portion of your Social Security benefit is a serious thing, let’s start by clarifying who may be subject to these reductions and who is not. The WEP generally applies to employees who have worked both in a private or public sector position that was subject to Social Security and in a public sector position that was not subject to Social Security. You will not be subject to a WEP reduction of your Social Security benefits if you paid Social Security taxes on at least 30 years of substantial earnings (an indexed annual amount that was $23,625 for 2017 — less for prior years). By contrast, the GPO is a potential reduction in Social Security benefits that may be payable to a spouse or surviving spouse of a Social Security beneficiary. Like the WEP, the GPO applies to spouses and surviving spouses of employees who have worked both in a private or public sector position that was subject to Social Security and in a public sector position that did not pay into Social Security. The GPO will not be applied to reduce a surviving spouse’s Social Security benefit in situations where the surviving spouse has paid into Social Security, based on his/her own earnings for at least 60 months prior to becoming eligible for Social Security. Continue reading

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When It Comes to Funding Pension and/or OPEB Liabilities, Not All Section 115 Trusts are Created Equal

Substantial confusion exists about whether the assets of an Internal Revenue Code section 115 trust created to fund pension or OPEB (retiree health) obligations may be used to offset the overall pension or OPEB liabilities that public employers are required to report under Government Accounting Standards Board Statements (Statement 68 for pension liabilities; Statement 75 for OPEB liabilities).

Statement 75 was issued in June 2015 as a replacement of GASB Statement 45 (issued in June 2004). GASB 45 became effective in phases between 2006 and 2008. GASB 45, and the guidance surrounding it, led many public agencies to believe that monies set aside in a 115 trust could be counted as an offset against OPEB liabilities on their financial statements. As a result, a number of these agencies established either a 115 trust or a section 501(c)(9) trust (a VEBA) for this purpose. Continue reading

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