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Furloughs May Impact Pension, Health Care, and Fringe Benefits

Furloughs May Impact Pension, Health Care, and Fringe Benefits

IOMA's Report on Managing Benefits Plans

September 03, 2009

Some employees with reduced hours may not work enough hours during the plan year to earn vesting credit in their pension plans for the year, Cowart said.

To fix this problem, an employer could amend its plan on a nondiscriminatory basis, Cowart said. For example, a plan could provide that all employees who take unpaid leave get credit for the hours they are on such leave, as if they worked their regular schedules. These amendments have to be in place by the end of the plan year in which they occur because they are discretionary amendments, she added.

Maintaining health plan eligibility. The impact of furloughs on eligibility for health benefits is similar to the impact regarding 401(k) plans, Friedman said, although generally, employers have more latitude when setting health care eligibility requirements.

For example, employers can provide that everyone who is regularly scheduled to work 20 hours per week is eligible to participate in the company’s health plan. An employee who has reduced hours due to a furlough could drop below the threshold, Friedman said.

There are a couple of ways employers could deal with this, Friedman said. First, an employer could treat the furloughed employees as if they are active, even on days they are furloughed. Second, an employer could lower the eligibility threshold, so that even after taking into account the furloughed hours, furloughed employees still qualify to participate in the health plan. The employer might have to amend the plan to provide for these situations, Friedman said.

In addition, if the health plan is insured, the employer might also have to get the insurer on board, Friedman said.


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