BENEFITS BYTE

March 23, 2004
BB 04—36

In this issue:

  • Nonqualified Deferred Compensation Provisions Added to International Tax Bill in the Senate
  • Senate Approves Mental Health Parity One-Year Extension Amendment
  • Council Urges Consideration of Patient Safety Legislation
  • Banking Committee Continues Hearings on Mutual Fund Reform

Nonqualified Deferred Compensation Provisions Added to International Tax Bill in the Senate

As we reported in the March 22 Benefits Byte, the current version of the Jumpstart Our Business Strength (JOBS) Act (S. 1637) includes nonqualified deferred compensation provisions that were previously added to the National Employee Savings and Trust Equity Guarantee Act (NESTEG) pension bill approved by the Senate Finance Committee in 2003. These provisions were added to S. 1637 through approval of a substitute amendment offered by Senate Finance Committee Chairman Charles Grassley (R-IA).

S. 1637 makes changes to international tax law as required by the World Trade Organization rulings on foreign sales corporations and extra-territorial income (FSC/ETI). The nonqualified deferred compensation provisions appear in Sections 671-675, (Pages 517-539).

The nonqualified deferred compensation provisions do not include any provisions relating to company-owned life insurance (COLI). Otherwise, the provisions generally mirror those found in the NESTEG bill. The proposal is now generally effective for amounts deferred after December 31, 2004. The provisions have been modified to clarify some technical aspects of the language including the definition of disability, the requirements for additional deferrals and to direct the Treasury Department to issue guidance permitting participants to revoke certain elections with respect to post-December 31, 2004 deferrals.

The repeal of section 132 of the Revenue Act of 1978, a prohibition on Treasury's ability to issue guidance on the timing of taxation of deferred compensation is not included in the latest version of S. 1637. The provision to impose a permanent moratorium on collection of FICA and FUTA taxes on incentive stock options and employee stock purchase plans is not included in S. 1637. In addition, the bill adds a provision changing the determination of the participants' investment in the contract (basis amounts) paid from foreign pension plans.

The provisions added to S. 1637 continue to include provisions the Council opposes, namely:

  • Restrictions on investment control by the participant (although the bill no longer prohibits investment in hedge funds, open brokerage windows and fixed rates of return that are above what is commercially available); and
  • Restrictions on the deferral of gain from the exercise of stock options and restricted stock (although the wording has been tightened to clarify the provision).

It is unclear whether S. 1637 has the support of 60 Senators needed to invoke cloture, and thus end the Senate debate and bring the bill to a vote. Consideration of the bill could potentially be bogged down by non-germane amendments. For more information, contact Diann Howland, Council vice president, retirement policy, or Lynn Dudley, Council vice president & senior counsel, at (202) 289-6700.

Senate Approves Mental Health Parity One-Year Extension Amendment

In a related matter, on March 22, the Senate approved an amendment to the Jumpstart our Business Strength (JOBS) Act (S. 1637) offered by Senate Finance Committee Chairman Charles Grassley (R-IA) that would extend a number of tax provisions that have either expired or are set to expire later in the year (Section 701 (Page 539) of the bill text). Included in the amendment is a provision to extend the existing mental health parity law for an additional year, until December 31, 2005. As we noted in the above story, It is unclear whether S. 1637 has the support of 60 Senators needed to invoke cloture, and thus end the Senate debate and bring the bill to a vote.

The current mental health parity law mandates parity in annual and lifetime dollar limits between medical and surgical benefits covered by a health plan and any mental health benefits covered by the same plan. The Mental Health Equitable Treatment Act (S. 486), which was approved by the Senate Health, Education, Labor and Pensions (HELP) Committee in 2003, would expand the mandate, but the sponsors of the legislation, Senators Pete Domenici (R-NM) and Edward Kennedy (D-MA) are working on a compromise plan in an effort to persuade the House of Representatives to approve an expansion of current law. The compromise would reportedly eliminate the requirement that all mental health diagnoses in the "DSM-IV," the compendium of mental health disorders, be included in the parity requirement and would permit some limits on mental health benefits if the health plan includes these limits on "substantially all" medical and surgical benefits, a term which is undefined.

Section 719 (page 555) of S. 1637 also contains a provision extending the permitted transfer of excess pension assets for retiree health care costs through December 31, 2013, and adds a provision that allows employers to make cost reductions without reducing the number of covered retirees.

The Council continues to emphasize to lawmakers that these modifications do not address all of the concerns that plan sponsors have raised with the expanded parity proposal. For more information, contact Maria Ghazal, Council director, health policy, at (202) 289-6700.

Council Urges Consideration of Patient Safety Legislation

On March 23, the Council sent a letter to Senate Health, Education, Labor and Pensions Committee chairman Judd Gregg (R-NH) recommending the swift passage of the Patient Safety and Quality Improvement Act (S. 720).

This bill, introduced by Senator Jim Jeffords (I-VT), would improve health care quality by encouraging voluntary reporting by health care providers of medical errors, adverse medical events and "near misses" to patient safety organizations. This information would be given strong confidentiality protections — including safeguards from inappropriate use in lawsuits — in order to encourage voluntary reporting of often sensitive information. The legislation would not preempt or limit separate public or private efforts to obtain the same or similar information on adverse medical events and medical errors from health care providers.

The Council's letter, as well as a brief summary of the legislation, is available on the Council Web site. For more information, contact Maria Ghazal, Council director, health policy, at (202) 289-6700.

Banking Committee Continues Hearings on Mutual Fund Reform

On March 23, the Senate Committee on Banking, Housing and Urban Affairs continued its examination of the mutual fund industry with a hearing on fund operations and governance. The panel heard testimony on this topic from academic experts, a financial services company and an investor watchdog group.

During the course of her testimony, Barbara Roper, director of investor protection for the Consumer Federation of America, requested that the Senators consider legislation giving the Securities and Exchange Commission (SEC) oversight authority over third party intermediaries that provide services to retirement plans that include taking mutual fund orders from participants. Roper indicated that the SEC apparently does not believe it has this authority absent a statutory change, and that this oversight might enable the SEC to propose an alternative to the previously proposed hard 4 p.m. close proposal (which would place retirement plan participants at a disadvantage to other investors; see the December 3, 2003 Benefits Byte).

For more information, contact Jan Jacobson, Council director, retirement policy, at (202) 289-6700.

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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.