February 25, 2004
BB 04—21

In this issue:

  • Urgency of Interest Rate Replacement Legislation Questioned
  • Council Submits HSA Comments to Treasury/IRS
  • Senate Fails to Invoke Cloture on Targeted Medical Liability Bill
  • House Committee Hears Testimony on Strengthening Pension Security
  • SEC Proposes Mandatory Redemption Fees

Urgency of Interest Rate Replacement Legislation Questioned

Questions have been raised with the Council's staff about the urgency of completing work on the Pension Funding Equity Act (H.R. 3108). The Senate appointed conferees immediately before the President's Day recess but the House has not yet named conferees. While a number of House members — including Chairman of the House Education and the Workforce Committee John Boehner (R-OH) — remain fully committed to going to conference, others have indicated that they are disappointed with the Senate version of the bill, asserting that as the economy recovers the immediate crisis has passed and replacement legislation can wait.

The Senate conferees are: Chairman of the Senate Finance Committee Charles Grassley (R-IA), Chairman of the Senate Health Education Labor and Pension Committee Judd Gregg (R-NH), the ranking minority members from those committees Sen. Max Baucus (D-MT) and Sen. Ted Kennedy (D-MA) and Senate Majority Whip Mitch McConnell (R-KY). The number and identification of the House conferees remains uncertain, though Boehner is expected to chair the conference.

It is critical that Council members contact House leadership immediately to express support for a conference on H.R. 3108. Council members are urged to communicate the urgency of the final passage of this legislation, and to the extent possible we ask that you clearly state the impact on your company as a result of the failure to enact H.R. 3108. Below is a list of the House leadership and their contact information.

Rep. Dennis Hastert (R-IL) — 202-225-0600 — Speaker
Rep. Tom Delay (R-TX) — 202-225-4000 — Majority Leader
Rep. Roy Blunt (R-MO) — 202-225-0197 — Majority Whip
Rep. Deborah Pryce (R-OH) — 202-225-5107 — Republican Conference Chair

You are also encouraged to contact your local representatives to alert them of your concerns. For more information, contact Diann Howland, Council vice president, retirement policy, or Lynn Dudley vice president, senior counsel at 202-289-6700.

Council Submits HSA Comments to Treasury, IRS

The Council has submitted comments to the Treasury Department and the Internal Revenue Service (IRS) requesting additional guidance and broad employer discretion in designing Health Savings Account (HSA) programs. New Internal Revenue Code provisions creating HSAs were included in the recently-enacted Medicare legislation. HSAs allow employers, individuals, and family members to contribute to an account used to pay for medical expenses in conjunction with a high deductible health plan.

In December, 2003, Treasury issued preliminary HSA guidance in the form of questions and answers (Notice 2004-2). Treasury expects to issue final guidance on a few key issues in late March with follow-up guidance on additional issues. The comments by the Council focus on allowing employer flexibility, while addressing a few key areas in which we would like to see clarification quickly, followed by some of the more technical changes we would suggest and also legislative changes that could help make HSAs even more attractive to employers.

For more information, contact Susan Relland, Council health policy legal counsel, at (202) 289-6700.

House Committee Hears Testimony on Strengthening Pension Security

On February 25, the House Committee on Education and the Workforce held a hearing on "Strengthening Pension Security for All Americans: Are Workers Prepared for a Safe and Secure Retirement?". The hearing included a lengthy question and answer period, in which the future of defined benefit pension plans was the focus, with witnesses offering their perspectives on threats facing the system and possible avenues for reform. Witnesses also responded to questions about defined contribution reform and the need for more education about saving for retirement.

Testifying before the panel were:

  • Ben Stein, Honorary Chairperson, The National Retirement Planning Coalition
  • Dan McCaw, Chairman and CEO of Mercer Human Resource Consulting
  • C. Robert Henrikson, President, U.S. Insurance and Financial Services for MetLife
  • Dr. Peter R. Orszag, Joseph A. Pechman Senior Fellow, The Brookings Institution

MetLife and Mercer are both Council board member companies. In their testimony, McCaw and Henrikson both stressed the need for investor education and a common-sense approach to defined benefit plan reform. There was a consensus among all the witnesses that the defined benefit environment is at a particularly critical juncture, with many Americans facing a financially uncertain retirement.

For more information, contact Lynn Dudley, Council vice president and senior counsel, at (202) 289-6700.

Senate Fails to Invoke Cloture on Targeted Medical Liability Bill

As expected, Senate Republicans failed to obtain the 60 votes needed to invoke cloture (end debate) and proceed to a vote on the Healthy Mothers and Healthy Babies Act (S. 2061). This bill would place federal caps on damages awarded in lawsuits connected to obstetrical or gynecological goods and services. The vote to invoke cloture was 48-45 with Senators Lindsey Graham (R-SC), Mike Crapo (R-ID) and Richard Shelby (R-AL) voting with the Democrats and Senator Robert Byrd (D-WV) voting with the Republicans. Seven senators were absent for the vote.

S. 2061, like the House-passed H.R. 5, would establish a $250,000 cap on non-economic losses and allow punitive damages only under a strict statutory standard for malicious actions and limit them to the greater of twice the economic damages or $250,000 for lawsuits connected to the provision of obstetrical or gynecological goods and services. The Council, along with 25 other companies and organizations, sent a letter to all senators expressing strong support for S. 2061.

It is unlikely that medical liability reform legislation will be signed into law this year. Nonetheless, Senate Majority Leader Bill Frist (R-TN) says he will continue to hold votes on medical liability reform throughout the year and may next introduce bills targeting emergency room providers and healthcare providers in rural and inner-city areas. All of these proposals are aimed at providing relief for specific medical specialties that are experiencing the highest medical malpractice insurance increases and highlighting Democratic opposition to the issue of medical liability reform. A broad medical liability reform bill (S. 11) failed to pass the Senate in July 2003.

The Council will continue to advocate that the key priorities for employers and health plans, including the scope of the bill and provisions concerning reimbursement and subrogation, be addressed appropriately in all medical liability bills. For more information, contact Maria Ghazal, Council director, health policy, at (202) 289-6700.

SEC Proposes Mandatory Redemption Fees

On February 25, Securities and Exchange Commission (SEC) commissioners voted to propose a mandatory redemption fee for short-term trading along with a number of exceptions that may be helpful for retirement plans. The proposed rule will institute a mandatory fee of 2 percent on the redemption proceeds of mutual fund shares redeemed within 5 days of their purchase. The proposal includes a de minimis exception that allows funds to not charge a redemption fee of $50 or less (sale of $2,500 or less in fund shares). Funds would calculate the redemption fee on shares held the longest period of time first, minimizing the likelihood that redemption of part of a participants account would be assessed the redemption fee. These exceptions should assist in eliminating fees that might be applied to redemptions requested shortly after an employee's deferrals are contributed to the plan. However, participants could still face inadvertent fees following the processing of a loan or qualified domestic relations order (QDRO).

Under the proposal, the fund could also waive assessment of the redemption fee in the event of an unanticipated financial emergency upon the shareholder's written request. (The commissioners did not indicate what would constitute a financial emergency under the proposed rule.) In addition, the fee would not apply to money market funds, exchange-traded funds and any mutual funds that encourage active trading if the fund discloses to investors in the prospectus that such trading will likely impose costs on the fund.

The proposed rule will also require intermediaries, including retirement plan administrators, to either assess the redemption fee and forward the proceeds to the fund, or provide enough information for the fund to assess the redemption fee. In any event, intermediaries would be required to provide the fund with sufficient information so that the funds can oversee the intermediaries' efforts to collect the fee.

In his opening statement to the commissioners, Paul Roye, Director of the Division of Investment Management for the SEC, indicated that the report of the Omnibus Account Task Force, spearheaded by the National Association of Securities Dealers (NASD), was very helpful to the SEC staff in coming up with recommendations relating to intermediaries. (See the Council's February 4 Benefits Byte.) Roye indicated the proposed rule would provide different methods by which the fund could work with intermediaries to assess the redemption fee.

Several commissioners commented that fair value pricing is a more effective tool for combating market timing then a 2 percent mandatory redemption fee. The proposed rule will ask for comments on fair value pricing and other possible tools to combat market timing. These and related topics are being discussed in a series of Senate Banking Committee hearings, the first of which took place on February 25. For more information, contact Jan Jacobson, Council director, retirement policy, at (202) 289-6700.


The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.