Wageworks in the Big House?
The C-suite of Wageworks ($wage) has been replaced and crisis management protocols and communications have been put in place, bank accounts changed and have replaced. Promoted their COO to CEO and fired their CFO and General Counsel and in a move that makes everyone believe they take all of this very seriously indeed, made their former CEO Chairman of the Board because, as a recent press release from one of several circling law firms states in their class-action lawsuit:
“…throughout the Class Period, the Company issued materially false and misleading statements and/or failed to disclose that: (1) there were material weaknesses in WageWorks’ systems of internal controls and that its practices and controls were ineffective; (2) WageWorks failed to adequately manage and assess risk relating to certain complex transactions, including certain government contracts; (3) WageWorks improperly recognized revenue thereby inflating its earnings and related financial metrics; and (4) as a result, WageWorks’ financial statements were materially false and misleading at all relevant times.”
Apparently, WageWorks has been paid a surprise visit by three letter agencies that investigate financial crimes.
WageWorks has over the past few years poured millions of dollars into a Washington, D.C. lobbying campaign they led to attempt to fix the hit their business took when the Affordable Care Act (ACA) passed and substantially decreased the total number of tax-free dollars that can be put into a Flexible Spending Account (FSA). The FSA is the quintessential notional account for employees that if they do not spend all of it by a certain point in time, they lose it and it is returned to the employer. (FSAs are known widely as the lose-it-or-use-it accounts.)
In short, the Democrats are not particularly supportive of FSAs, as evidenced by the ACA and their lack of support to change that provision back to pre-ACA levels. The Democrats have not been keen to undo any piece of the Affordable Care Act, and the Flexible Spending Arrangement provision is no different.
WageWorks had some initial luck with the Republican majority in rolling back the hit FSAs took in the ACA, but while the provision to increase the allowable FSA contribution to pre-ACA levels was in the initial GOP health care bill in the House, it was shortly thereafter dropped and the money that would have gone to the FSA tax-break was shifted to other GOP priorities. In all the GOP health care bills brought to the floor by the House or Senate GOP leadership, the provision to restore the FSA tax break was not in any of those bills.
For Republicans, the problem with an FSA is that there is no real money in the account, it a notional account, which the employer owns at all times. The employee may spend from the FSA up to a certain pre-set amount, but if by a certain time the employee does not use the money, they lose it.
This is the key difference between an FSA and an HSA, it is the ownership of the funds in the account. An HSA money is owned by the employee the second it is deposited into their HSA, and obviously stay in their account until they spend it.
The lack of any success in Washington for WageWorks on the FSA question impacts the majority of WageWorks annual revenue, which is my back of the envelope estimate.
While the Democrats substantially decreased the FSA tax break and the Republicans pointedly declined to restore it, the recent GOP tax cut bill eliminated the tax benefits for another one of WageWorks key business lines, the administration of what used to be tax-free transit fare benefits for employees.
Put it another way, in a bill that cut taxes, one of WageWork’s key business lines had its taxes raised, not lowered, meaning once again, a key priority for WageWork’s business model met with failure in Washington.
These political failures that directly impact WageWorks business model, with both the Democrats and Republicans, combined with the recent decapitation of WageWork’s leadership because of an investigation into criminal behavior, is just another failure in a line of WageWorks failures.
And there will be more news about WageWorks as details of their alleged criminal behavior become known over the course of the next months.