With the new Department of Labor rule coming into place to raise the salary threshold for overtime pay to $35,568, employers should start to consider the effect this will have on employee benefit packages. Kathryn Wheeler, an attorney with Jackson Lewis P.C., has stated that some companies already have in place different benefit tiers for exempt and nonexempt workers. The question remains what will happen to the employees who will be making the same wage per week as before, but will now be considered nonexempt and not be eligible for the same benefit plans.
Wheeler has explained that this could in fact effect employers starting January 1, and if that is the case for your company to start thinking about advanced notice for the affected parties. An annual discrimination test should be done to ensure that the plans do not discriminate in favor of highly compensated employees.
Katharine Marshall, Margaret Berger and Brian Kearney, members of Mercer’s law and policy group, gave the following examples of the possible impact of the new law on 401(k) and other defined-contribution plans.
• Matching Contributions – If your plan recognizes overtime pay while calculating employer contributions then a 10% increase in earnings will generally bring a 10% increase in elective deferrals and matching and other employer contributions
• Nondiscrimination Testing – Accrual rates and deferral percentages of those who are not highly compensated may fall if the plan excludes overtime from the pay used to determine benefits but includes overtime in the pay used for nondiscrimination testing. Because of this many highly compensated workers accrual rates will not be affected and the overall testing results will suffer.
• Pension Plans – Depending on the overall plan and funding the cost increase per company will vary. Just because there is a 10% increase in affected employees’ earnings does not mean that it will lead to a 10% increase in pension cost for those employees. If your plan happens to be well-funded, the Internal Revenue Code’s funding requirements may mean the immediate cost impact to your company is zero.
Remember that a change in the population of eligible employees for any particular benefit could affect cost and effectiveness. If you have any questions regarding your companies benefit plans, and how they might be affected by this rule please do not hesitate to give us a call. We are here to help you in any way you might need. Please feel free to reach out to us at (610) 296-8550 or firstname.lastname@example.org.
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