‘hire young untrained
displacing other: workers to

Another health care topic that is
the subject of frequent debate is a
requirement that group health
insurance plans and health insurers
cover mental illnesses and substance
abuse treatment in the same way that
other illnesses are covered. At
present, coverage for mental health
and substance abuse treatment is
frequently limited to a specified
number of days or visits per year and
a strict dollar limit, often much
lower than limits imposed on other
illnesses. For example, among
medical plan participants in 1993,
84 percent had some additional
limits, beyond those for non-mental-
health care, imposed on inpatient

mental health care; 96 percent had
additional limits imposed on
outpatient mental health care.? The
proposed changes to treat mental
health and substance abuse treatment
the same as other illnesses are
similar to changes that occurred in
1979, following passage of the
Pregnancy Discrimination Act.
Prior to the Act’s passage, medical
plans frequently limited coverage
for child birth and related care to
less than that provided for other
procedures.

Conclusion
Statistics on employee compensa-
tion—wages, salaries, and employer-

provided benefits—can only be
produced with a detailed understand-
ing of how compensation plans
work, and what changes occur. An
integral part of the compensation
programs of the Bureau of Labor
Statistics is a process to try to keep
abreast of changes occurring in the
compensation field; a periodic
survey of activities in Congress is
one part of that process. Many of
the proposals currently being
considered in the 105th Congress
would change the way compensa-
tion statistics are collected and
reported. It is important for BLS to
continue to follow these proposals
closely.

Compensation and Working Conditions Fall 1997 14


Table 1. Percent of full-time employees by type of work schedule, medium and large private establishments’, 1993,

Professional Clerical and| Blue-coliar
‘Type of work schedule Allworkers |andtechnical sales and service
workers workers workers
100 100 100 100
94 ot 94 95
4 6 5 2
1 1 “ 1
| 1 2 1 1
| 1 1 1 1

* Medium and large establishments are those employ-
ing 100 workers or more.

2 Employee can vary beginning and ending time of work.

* Hours or days of work vary, typically in a cycle of 2 or
3 weeks.

“Less than 0.5 percent.

* Examples of workers on non-fixed schedules include

college professors and hospital interns.

NOTE: Because of rounding, sums of individual items
may not equal totals,

SOURCE: U.S. Department of Labor, Bureau of Labor
Statistics, Employee Benefits Survey

Table 2. Extent of individual retirement account deductions on Federal income tax returns, 1975, 1980-92

Number of reporting]
Ta r units claiming an | Percentof returns | Amountclaimed (in
yea IRA deduction'{in billions of dollars)
millions)
1975 12 18 $1.4
1980 26 27 34
1981 34 36 48
1982 120 126 28.3
1983 13.6 14.4 32.1
1984 152 153 35.4
1985 162 159 38.2
1986 185 15.4 378
1987 73 68 144
1988 64 58 11.9
1989 | 58 52 10.8
1990 ' 52 46 99
1991 47 44 9.0
1992 45 40 88
i
SOURCE: U.S. Department of Treasury, Internal Revenue Service
Table 3. Percent of employees by retirement coverage, 1992-93
, State and - -
Retirement plan All workers | Private local Fulltime | Part-time
_ _ sector | government | Workers workers |
TO I
Covered by one or more retirement plan... 58 53 89 66 2a |
Defined benefit pension plan ... 40 32 83 45 18
Defined contribution plan 31 35 8 35 13
Not covered 42 47 1" 34 76

NOTE: Sums of individual items may be greater than

total because workers may participate in more than one Statistics, Employee Benefits Survey

retirement plan.

17 Compensation and Working Conditions Fall 1997

SOURCE: U.S. Department of Labor, Bureau of Labor



A new IRA tax provision estab-
lishes the so-called “backdoor” IRA
(also called IRA Plus and the
“American Dream” IRA). Under
these plans, initial IRA deposits will
not be deductible, but earnings on
such deposits will never be taxed, as
long as funds are not withdrawn for
at least 5 years. Rules limiting
withdrawal for retirement or other
specific purposes would also apply.
In addition, individuals with IRAs
from prior years will be given the
opportunity to convert those plans to
the new back door plans, by paying
income taxes on their original
deposits during a set time period.

Expanded participation in IRAs
among lower income individuals is
the goal of a proposed IRA tax
credit, not included in the bill.
Individuals with income below a
certain level would be eligible for a
doliar-for-dollar reduction in income
taxes, equal to their IRA contribu-
tions. Such a provision provides
greater tax savings than tax deduc-
tions, which reduce the amount of
income being taxed. Yet another
effort to expand IRA participation
would require employers to offer
their employees the opportunity to
contribute to their IRA through
payroll deductions providing greater
opportunities for individuals to
contribute to the account.

Employer-provided retirement
plans

A perennial topic of Congres-
sional examination is broadly termed
“pension reform.” Such efforts often
fall into two areas — lessening
employer requirements and broaden-
ing employee protections. Lessening
employer requirements is intended to
encourage expansion of pension
benefits, especially among smaller
employers. Broadening employee
protections in the past has included
lowering the number of years an
employee must work under a pension
plan before benefit rights are vested,
and requiring plans to provide
survivor benefits to married employ-
ees (unless both spouses waive such

coverage).*

Current topics in the pension
reform area again take several forms.
In the area of lessening employer
requirements, considered legislation
would lengthen the amount of time
employers have to prepare certain
reports for employees and the
government. Employer reporting
requirements are one of the corner-
stones of the Employee Retirement
Income Security Act of 1974
(ERISA), the landmark pension
legislation designed to protect
worker benefits. Employers are
required to provide certain informa-
tion to covered employees and to the
government, and to update that
information regularly and when plan
changes occur. Changes in reporting
requirements have occurred in the
years since ERISA became effective;
current legislation would lessen
employer burden associated with
those requirements.

Another employee protection that
has been revised numerous times
over the past 20 years, is the
coordination of private pension
benefits with Social Security.>
Because employers fund a portion of
their employees’ Social Security
benefits (through the payroll tax),
they are allowed to provide some-
what lower pension benefits on
income subject to the Social Security
payroll tax. Several complex
coordination formulas are allowed,
although major changes to these
rules were made in 1986. Since
then, the incidence of coordinated
pension plans has dropped consider-
ably. (See table 4.) Current propos-
als would ban the coordination of
pension plans with Social Security,
potentially increasing pension
benefits (especially for higher paid
individuals).

Health care

Following unsuccessful attempts
in 1993-94 to completely overhaul
the Nation’s health care system,
more recent legislative initiatives
have focused on incremental changes
to the system. In 1996, legislation

13. Compensation and Working Conditions Fall 1997

was enacted, requiring employers
who offer health care benefits to
include coverage for pre-existing
conditions, which could previously
be excluded from coverage. (See box
on 1996 health reform law.)

Following this trend, initiatives in
the 105th Congress are again
focusing on smal] changes to the
Nation’s health care system. One
topic of considerable interest is the
number of uninsured individuals,
especially children. In part, this is
an employment-related issue because
many of the uninsured are workers,
or their dependents. As of 1991,
approximately 18 percent of
nonelderly Americans were unin-
sured—nearly 40 million individu-
als. Furthermore, this percentage
has risen gradually over the past few
years. (See table 5.)

Among the nonelderly uninsured,
more than half are working adults.
For these individuals, either their
employer does not offer health care
benefits (or doesn’t offer benefits to
certain classes of workers, such as
part-timers), or they have chosen not
to be covered by their employer,
perhaps because of the cost of
required premiums. Twenty-seven
percent of the uninsured, 11.1
million, are children under the age
of 18. Of these, many are in families
where the head of household is
employed.*

The 11 million uninsured
children represent about 14 percent
of all children — 1 in every 7.
Several efforts in the 105th Congress
are designed to provide greater
access to health insurance for these
children. One bill would require
group health plans offered by
employers to cover dependent
children.’ Another proposal would
provide block grants to States to
expand Medicaid coverage to
uninsured children. Alternatively,
there is a proposal to provide
individuals with a tax credit for the
purchase of health insurance. Such
a process provides a direct dollar for
dollar offset of the cost of insurance
against income taxes owed.*

|


‘idual had been treated for a given:condition site the Jast'6 months, the new
edical services associated with that condition for the first 6 months of coverage.
provisions may include a-dollar limit‘on:the amount the new plan will pay for a pre-
(for example, the plan will not pay more than $1.00 for services associated with a

i je). In 1993, BLS data indicated that about half of
t health care benefits had restrictions placed

sa jan? The provision requiring insurers to
vailable to all smal employers i is designed to expand health insurance coverage
OF ‘small employers.
‘ings accounts is also a part of the new. law. Such accounts are
deposited in these accounts are tax deductible and'earnings on these
. Individuals would be allowed to set up such accounts by choosing
ith a high dedi le generally $1, 500 er year or more. The intention:is that

15 Compensation and Working Conditions Fall 1997


Table 4. Percent of full-time employees with defined benefit pension coverage by extent and type of coordination
with Social Security, medium and large private establishments, selected years 1980-93"

Item 1980 1983 1986 1989 1993
Total with defined benefit pension ... 100 100 | 100 100 100
Formula integrated with Social Secutity .........-. 45 ss |e 6 48
Offset by Social Security? 30 35 43 | 41 17
‘Step-rate formula®.. 16 19 23 i 24 31
Formula not integrated with Social Security .. 55 45 38 i 37 52

‘Prior to 1989, medium and large establishments include
those employing 50-250 workers or more, depending upon
industry. Beginning in 1989, medium and large establish-
ments are those employing 100 workers or more, regard-
less of industry.

2 Under an offset plan, the computed pension benefit is
reduced by some portion of the anticipated Social Security
benefit to be received by the employee.

8 Under a step-rate excess plan, the benefit rate applied
to an individual's earnings varies, with a lower rate applied

toeamings up to the Social Security tax limit (or some similar
level established by the plan) and a higher rate applied to
earnings above that limit.

NOTE: Sums of individual items may not equal totals
due to rounding and also due to the possibility that some
pension plans include formulas with more than one type of
integration

SOURCE: U.S. Department of Labor, Bureau of Labor
Statistics, Employee Benefits Survey

Table 5. Number and percent of nonelderly Americans without health insurance coverage, selected years 1980-91

Year

Number (in millions) Percent

| 29.65 149

H 30.72 15.2

| 34.95 17.0
36.85 176
34.46 16.2
36.50 17.0

| 37.69 17.4

i 30.38 18.0

SOURCE: U.S. Department of Commerce, Bureau of the Census, Current Population Survey

Compensation and Working Conditions Fall 1997

18


BY WILLIAM J. WIATROWSKI

William J. Wiatrowski is an economist in the Di-
vision of Compensation and Data Estimation,
Bureau of Labor Statistics. Telephone (202) 606-
6255.

Compensation
Legislation in the 105th

Congress

As wage-related topics take a back seat in Congress, “comp
time,” health care, and retirement plans have moved to the fore-
front of current legislative discussions in this area.

mployee compensation was
E= the sole purview of

employers, who controlled the
type and amount of remuneration
their employees received. With the
prominence of unions in the late
19th century, for some, employee
compensation became the subject of
collective bargaining. Labor
legislation and court rulings in the
1930s and 1940s solidified this
relationship, as unions were recog-
nized as the official bargaining
agents for groups of workers, and
were allowed, by law, to bargain for
“wages, hours, and other terms and
conditions of employment.”! Federal
laws governing compensation also
became prominent in the first few
decades of the 20th century. Among
the first compensation-related laws
enacted were Social Security (1935)
and minimum wage requirements
(1938). In recent years, local and
Federal legislation related to
employer compensation practices
have become commonplace.

The 105th Congress, convened in

January 1997, is considering a
number of compensation-related

measures. This article takes a brief
look at some of the major bills before
Congress in the area of compensa-
tion. The bills fall into two broad
categories: those related to hours of
work and time off, and those related
to employer-provided benefits. The
considered legislation includes new
initiatives, amendments to existing
law, and measures considered, but
not enacted, in previous years.

There is currently no major
legislation proposed concerning
wages, Wage-related topics periodi-
cally considered by Congress include
the minimum wage and alternatives
to that minimum, such as the
training wage. In 1996, Congress
increased the minimum wage from
$4.25 per hour to $4.75 per hour,
effective October 1, 1996; the
minimum will rise to $5.15 per hour
on September 1, 1997.

Another wage-related topic
receiving periodic attention is known,
as “prevailing wages.” This would
require employers doing business
with the Federal Government to pay
wages comparable to those received
by employees in similar occupations

Compensation and Working Conditions Fall 1997 10

“TI


} ‘The scope of collective bargaining was es-
tablished by the National Labor Relations Act of
1935 (the Wagner Act), as amended by the Taft-
Hartley Act of 1947. For more information on
these laws, see Alvin Bauman, “Measuring Em-
ployee Compensation in U.S. Industry," Monthly
Labor Review, October 1970, pp. 17-24.

? The Family and Medical Leave Act of 1993
provides up to 12 work weeks of unpaid leave
during a 12-month period for personal illness or
family illness. For more information, see “Paren-
tal Leave Benefits Provided by Employers,” Is-
sues in Labor Statistics, Summary 93-1, Bureau
of Labor Statistics, 1993,

*In 1996, Congress raised the limit of so-called
spousal IRAs, which allow a married couple with
only one working spouse to deposit IRA funds for
both spouses annually. Prior to this year, such
spousal deposits were limited to $250 per year; as
of 1997, that limit is $2,000 per year.

Vesting is the right of a covered employee to
future benefits from the pension plan. For more
information, see Avy D. Graham, “How Has Vest-
ing Changed Since Passage of Employee Retire-
ment Income Security Act?,” Monthly Labor Re-
view, August 1988, pp. 20-25.

Defined benefit pension plans are also required
to offer certain survivor benefit options. Details

-—ENDNOTES—

of these provisions may be found in Donald Bell
and Avy Graham, “Surviving Spouse's Benefits
in Private Pension Plans,” Monthly Labor Review,
April 1984, pp. 21-31.

* For a comprehensive analysis of pension
benefit formulas integrated with Social Security,
see Avy D, Graham, “Coordinating Private Pen-
sion Benefits with Social Security," Monthly La-
bor Review, March 1984, pp. 35-38.

* For more information on access to health
care benefits, see William J. Wiatrowski, “Who
Really Has Access to Employer-Provided Health
Benefits?,” Monthly Labor Review, June 1995,
pp. 36-44,

7 Data from the BLS Employee Benefits Sur-
vey indicates that nearly every employer-provided
health care plan provides coverage for workers and
dependents. Only in rare circumstances are ben-
efits provided just to the employee.

* A tax credit is a direct reduction in the
amount of tax liability. A refundable tax credit
allows taxpayers to receive a cash refund even if
the credit reduces their tax liability below zero.
For example, if a family had a tax liability of $300
and a refundable tax credit of $500, they would
be entitled to a refund of $200 ($300 owed minus
$500 credit). In one proposal, families below cer-
tain income thresholds would receive a tax credit

of up to 90 percent of premiums paid for children’s
health insurance, as long as the child does not have
access to Medicaid or an employer plan

* For more information on mental health and
substance abuse treatment limits, see Employee
Benefits in Medium and Large Private Establish-
ments, 1993, Bulletin 2456, Bureau of Labor Sta-
tistics, 1994.

‘© For more information on pre-existing
condition provisions, see Employee Benefits
in Medium and Large Private Establishments,
1993,

“ COBRA stands for the Consolidated Om-
nibus Budget Reconciliation Act of 1985. One
provision under this Act sequires employers to
offer formerly covered employees the opportunity
to continue their previous health insurance cover-
age by paying the full premium (plus a small ad-
ministrative fee). Coverage continuation is gen-
erally available for up to 18 months following loss.
of employer coverage.

" For example, according to the BLS Em-
ployee Benefits Survey, 82 percent of full-time
workers in establishments with 100 or more em-
ployees participated in a health care plan in 1993,
compared with 71 percent of full-time workers in
smaller establishments (those with fewer than 100
workers), in 1992.

Compensation and Working Conditions Fall 1997 16


in the same geographic area. Such
prevailing wage rules are applicable
to construction workers, service
workers, and others. Data from the
Bureau of Labor Statistics are used
by regulators to establish prevailing
wage rates for selected service jobs;
other data sources are used by
regulators to establish prevailing
wage rates for other jobs. There is
periodic discussion in Congress
designed to change or eliminate
prevailing wage rules.

Hours of work and time off

One prominent work hours-
related proposal in the 105th
Congress is known as “comp time.”
There are actually several versions of
comp time legislation, some broader
than others,

The basic premise of this legisla-
tion is to amend the Fair Labor
Standards Act of 1938 (FLSA),
permitting private sector employees
to receive compensatory time in lieu
of overtime. FLSA is one of the
hallmarks of labor law, establishing
the concept of a 40-hour work week
and the requirement that employers
pay time and one-half for overtime.
(See box for a discussion of current
provisions of the Fair Labor Stan-
dards Act.) As envisioned, the comp
time bills would amend the FLSA to
increase work time flexibility.

The House of Representatives bill,
the “Working Families Flexibility
Act,” contains the following provi-
sions:

* Employers have the option of
providing employees the right
to accrue comp time in lieu of
overtime pay;

* If an employer provides such
an option, employees may
accrue comp time in lieu of
overtime pay for overtime
hours worked;

* Employers are prohibited from
requiring employees to accrue
comp time in lieu of overtime
pay for overtime hours worked;

© Comp time hours accrue at a
rate of one and one-half hours
of comp time for each hour of
overtime worked;

* Employees may accrue up to
160 hours of comp time
(although various proposals
include different numbers of
maximum hours);

* Employees may withdraw from
the comp time agreement at
any time and receive payment
(within a specified number of
days) for accrued hours;

* Employers must pay employees
for accrued comp time hours at
the end of each year;

* Employers are required to
grant employee requests for
use of accrued comp time
hours, unless such absence
would disrupt operations of
business.

The Senate bill, the “Family
Friendly Workplace Act,” includes
provisions similar to those in the
House bill, plus the following:

© Employers may establish
biweekly work schedules in
which overtime compensation
is due for hours worked over
80 in a 14 day period;

* Employers are prohibited from
requiring employees to
participate in such work
schedules;

° Employers may establish
flexible credit hour programs
in which hours worked in
excess of an employee’s “basic
work requirement” may be
used to reduce the employee’s
hours of work, on an hour-for-
hour basis, in a subsequent day
or week;

* Employers are prohibited from
requiring employees to

11 Compensation and Working Conditions Fall 1997

participate in such flexible
credit hour programs.

‘To date, debate concerning comp
time legislation has centered on
whether the bills provide employees
with sufficient choice and protection.
Proponents stress the need to provide
workers with time to attend to family
business, such as school conferences
for children or eldercare arrange-
ments for parents. Opponents argue
that employers are given too much
control in choosing who receives
comp time and when it can be used.
Included in the debate is discussion
of currently-available alternative
work schedule arrangements and the
potential that employers and
employees might be able to adjust
existing schedules to meet family
needs. (See table | for information
on the current availability of
alternative work schedule arrange-
ments.)

Comp time proposals are often
discussed in relationship to the
Family and Medical Leave Act, a
1993 law requiring employers to
make available unpaid time off to
employees for personal or family
medical needs.? One proposal is to
expand the Family and Medical
Leave Act to cover more workers
(the Act is currently limited to
employers with 50 workers or more)
and to be available for more pur-
poses, include attending school
activities, accompanying family
members to routine medical appoint-
ments, and assisting family members
in obtaining other professional
services.

Another proposal related to hours
of work would allow individuals to
volunteer their services to certain
employers without violating the
minimum wage and overtime
provisions of the Fair Labor Stan-
dards Act. Presently, FLSA restric-
tions do not allow individuals to
volunteer their services to private
sector employers, even if such
service would help them develop
skills that would further benefit them
in the workplace. The Job Skills

=


Development Act would amend the
FLSA, allowing individuals to
volunteer unpaid time in the private
sector. Safeguards included in the
bill are intended to ensure employers
do not coerce individuals to work
without pay, and volunteer work
does not exceed certain hour
thresholds.

Individual retirement accounts
Retirement income and health
care are two employee benefit topics

that are frequently the subject of
legislative initiatives. Over the last
30 years, a succession of pension
reform laws have expanded worker
protections, improved the fiscal
strength of pension plans, and
required greater public disclosure
about the operation and financial
status of pensions. Conversely,
attempts to enact legislation regulat-
ing employer-sponsored health care
plans have been largely unsuccessful
at the Federal level, although a
number of States have passed laws in
the health care area, typically in the
form of insurance regulation.
Legislation introduced in the 105th
Congress is largely designed to make
small changes to existing rules
covering these benefits.

Several retirement-related bills
currently in Congress are designed
to improve access to individual
retirement accounts and ease certain
rules currently covering employer-
provided retirement plans. Indi-
vidual retirement accounts (IRAs)
are frequently discussed in the
context of employer-provided
retirement benefits for two reasons:
these plans offer similar tax advan-
tages to employer-provided plans,
and access to these plans is deter-
mined in part by an individual’s
employer retirement plan coverage.

IRAs have been in existence since
the mid-1970s. Several changes in
their tax status over the past 20 years
have influenced the number of
Americans who could, and did take
advantage of these plans. These
plans allow individuals to invest
funds in a retirement account and

deduct the amount of their invest-
ment from their income for current
tax purposes. Invested funds, and
the earnings on those funds, are not
taxed until they are withdrawn; this
typically occurs at retirement age.
Because these plans are intended to
help workers accumulate retirement
savings, there are severe tax penal-
ties for withdrawals prior to retire-
ment.

When first introduced, IRAs were
only available to workers not
covered by an employer retirement
plan. They received little attention
and attracted only a small number of
investors. Eligibility for IRAs was
expanded greatly in 1981, when they
were made available to all working
Americans, regardless of other
retirement plan availability. Interest
in these plans soared and the number
of tax returns including IRA
deductions grew substantially
through the mid-1980s. (See table 2
for information on the extent of IRA
deductions from Federal tax returns.)

This widespread use of IRAs was
curtailed with the Tax Reform Act of
1986, which was designed to target
IRAs to lower income workers and
to those with no employer retirement
coverage. The revised rules, which
are currently in effect, generally
limit the IRA tax deduction to
workers with no employer retirement
plan. The deduction was maintained
for lower income workers with these
plans, and is phased out as income
increases. With about three-fifths of
all American workers covered by an
employer-provided retirement plan,
it is not surprising the change in
access rules led to a large decline in
IRA deductions. (Table 3 provides
information on the extent of retire-
ment coverage.)

As part of the 1986 IRA changes,
a new type of IRA was introduced,
called “nondeductible IRA.” This
allows savers to defer income taxes
on investment income, but not
deduct the amount deposited. Such
plans include many of the same rules
as deductible IRAs regarding limits
‘on amount of deposits and timing of

deposits and withdrawals. When
withdrawn, only earnings are
taxable; there is no tax consequence
associated with withdrawal of the
original deposit. These plans have
not proven as popular as deductible
IRAs, because investors may be able
to find other vehicles allowing them
to defer paying income taxes on
current investment income, but not
imposing such severe restriction on
fund access.

Tn the 105th Congress, several
initiatives are designed to change
again the rules governing IRAs.
Topics being considered include
changes to the contribution limits
and expansion of tax eligibility for
tax deductible IRAs, and changes in
tax provisions of IRAs. Some
changes to IRA rules were enacted
in August 1997 as part of a tax
reform law. These changes are
generally effective in 1998. Other
changes are still being considered.

Maximum annual contributions to
IRAs are set by law. When first
enacted in 1974, the limit was
$1,500 per year. That limit, raised
to $2,000 per year in 1981, remains
at that level today. Critics argue that
such limits should be indexed to an
inflation indicator, as is true with
other tax limits. Current proposals
before Congress, not included in the
tax bill, would raise the limit in
$500 increments, according to some
measure of inflation.*

The new tax law expands
eligibility for tax deductible IRAs by
increasing the income limits beyond
which individuals with employer-
provided retirement coverage cannot
deduct IRA contributions. The law
will raise the income limits gradu-
ally over several years. Another new
expansion of IRA eligibility will
allow an IRA deduction for a worker
without employer-provided retire-
ment coverage, regardless of the
pension coverage of their spouse.
Until 1998, both spouses are con-
sidered to have employer-provided
coverage, and thus limited in their
potential IRA deduction, if at least
one spouse has such coverage.

Compensation and Working Conditions Fall 1997 12