How does government involvement affect company employee benefit plans?

the government would affect the tax treatment of the benefits from both an income perspective (to the recipient) and from an expense perspective (the employer).

Government Influence

The influence of government on benefits has come in three ways: directly through legislation, directly through attempts to control the economy, and indirectly through the tax laws. In the 1930s there was a flurry of legislation that produced organizational requirements in the areas of Workers' Compensation, unemployment compensation, Social Security, Old Age and Survivors' Benefits, and disability insurance. More recently, some state legislation has provided for employer and employee contributions toward non-work accidents and illnesses.

Since the 1960s there has been a new flurry of legislation, designed not to create new benefits but to control programs currently offered by organizations. The most critical of these acts are the Employee Retirement Income Security Act (ERISA), dealing with retirement plans; the Civil Rights Act, which affects all areas of benefits; the Occupational Safety and Health Act (OSHA), which deals with safety standards on the job; and the Consolidated Omnibus Reconciliation Act (COBRA) and the Health Insurance Portability Act (HIPAA), which deal with health insurance.

The latter act, HIPAA, is worthy of full study. Since 1974, U.S. federal law has been firmly established related to welfare and retirement benefits. States are not allowed to pass laws that supersede ERISA. For medical benefits and insurance, that feature (which allowed companies to easily operate across state boundaries) has now been amended by HIPAA so that states that pass laws that are more favorable to employees related to medical benefits have the right to supersede federal law. Companies must now deal with the fact that certain states Kentucky, for example, mandates chiropractic services be provided, while most others states do not.

At times, usually wartime, the government has imposed wage and price controls. These controls have given a strong impetus to the growth of benefits by permitting improvements in benefits while discouraging wage and salary increases on the grounds that the latter would contribute to inflationary pressures (while the former would not). Clearly, this view is that benefits are fringes.

An equally important,but indirect, influence of the government on benefits has been income-tax legislation. High corporate income-tax rates make it advantageous for employers to include as business expenses a wide range of benefits, particularly those to executives. Since most of these benefits are not taxed as income, provision of these benefits results in huge savings for the employer. The future of this reason for benefits is in doubt. Most suggestions for income-tax reform contain restrictions on what organizations can write off as expenses, and most propose to tax at least some benefits.
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