An Alternative to ''Employee'' Benefit Plans


 ERISA has served American workers relatively well over the past 30 plus years. Millions of employees have achieved relative retirement security with significant pension and retiree health benefits. Employers have presumably found employee benefit plans to be a generally positive means of attracting and retaining workers and easing them into dignified retirement in order to replenish the workforce (or sometimes downsize it). However, the entire employee benefits system has become frayed at the edges, if not the core, and currently seems not to be serving either employers or employees well in many situations.

ERISA has been constantly amended and Congress, the regulatory agencies and the courts have imposed many burdens that employers would prefer not to deal with. And the business and economic landscape has changed dramatically over the years. The DB system appears to be in its death-throes. Even healthy, successful companies are freezing their plans. And generous retiree health plans are already a thing of the past except for a relatively small union workforce in certain industries (and even there it is not sustainable).

Accordingly, we need some alternative to the current system. I suggest a program under which benefit programs are disassociated from employer sponsorship. The plans could be developed and provided by major financial, administrative, insurance and other companies. The programs could pretty much parallel the types of designs that are in use today, even though there would be complete portability and probably only account-based DB type programs under which an account balance could be used, at ultimate retirement, to acquire lifetime annuity benefits. Employers would provide funding for the benefits which could be flexible from year to year and be subject to some nondiscrimination standards. Individuals would supplement employer contributions with their own. People without an employment and employment relationship would also participate in the system. The current tax advantages for employee benefit plans could largely be preserved, but there would probably need to be a cap on the tax advantage healthcare premium (i.e. amount that either an employee could receive from an employer tax free or that an individual could pay himself/herself on a tax deductible basis- note below, I am proposing equality of access and treatment between employees and those and those not employed). Presumably, these programs and the new sponsors would be subject to a uniform federal regulation generally similar to ERISA and employers would be permitted to either maintain their own ERISA plan or elect for the new non-sponsorship model. Health benefits would probably need to be developed through community rating and regional plans somewhat analogous to Medicare part D (with some form of cross subsidy between local or regional plans based on age and experience demographics of each plan's participating pool).

The entire program would certainly be easier to establish for financial type benefits (e.g. 401(k), account based db, life and disability insurance) than it would be for active and retiree health coverage (because the latter would require other market force and legal changes).

The benefit to employers who are willing to continue to provide significant funding for benefits is that they would have little or no fiduciary responsibilities or other obligations associated with sponsorship and they would have no long-term financial commitment to the vagaries of pension funding or the cost spiral of healthcare. The benefit to employees and others who would now gain access to a benefits system is complete portability, continued partial funding by employers, and equality of treatment of those working and those not working (who could fund their own benefits, or if deemed poor, could receive some government subsidy).

This new benefit design would, of course, require legislative and regulatory changes and assumption by various companies in the financial and other industries of responsibility for new plan design, effective sponsorship, some financial risk (although that could be limited because DB benefits would presumably be account based and health benefits would be repriced each year as they now are), and fiduciary responsibilities.