March 24, 2004
BB 04—37

In this issue:

  • Supreme Court Hears Arguments in Two ERISA Cases
  • Senate's International Tax Bill Likely Delayed Until Summer
  • IRS Proposed Regs Allow Elimination of Optional Forms of Benefit in DB Plans

Supreme Court Hears Arguments in Two ERISA Cases

On March 23, the United States Supreme Court heard oral arguments in two related cases involving ERISA preemption of state tort law claims in the medical malpractice context: Aetna Health Inc. v. Davila and Cigna Healthcare, Inc. v. Calad. At issue is whether the remedies available under state medical malpractice laws or the federal remedies available under ERISA should govern when an insurance company makes a benefits determination, which involves making a medical judgment.

From the Council's perspective, the oral arguments seemed favorable. Miguel Estrada, counsel for Aetna and Cigna, expertly argued points consistent with an employer/plan sponsor's position in the case. The general tone of the questions by the Justices seemed to favor Aetna and Cigna's position as well. The majority of their comments focused on the fact that the plan was not making medical treatment decisions (which would subject the plan to the Texas liability statute), but rather was making decisions about whether the plan would pay for a certain medical treatment (i.e., a benefits determination subject to ERISA.) Also appearing before the Court were attorneys for the plaintiffs, the U.S. Solicitor General's office, and the state of Texas.

The Council, along with America's Health Insurance Plans and the Blue Cross & Blue Shield Association, filed an amicus brief in the two cases on December 19, 2003. The Council's brief supports the merits of the petitioners' (Aetna and Cigna) arguments that ERISA's remedies – and not those under state law – apply in such cases. A brief filed by the U.S. Solicitor General reached the same conclusion.

Council staff have prepared a comprehensive report on the oral arguments. For more information, please contact Susan Relland, Council health policy legal counsel, or Paul Dennett, Council vice-president health policy, at (202) 289-6700.

Senate's International Tax Bill Likely Delayed Until Summer

On March 24, the Jumpstart Our Business Strength (JOBS) Act (S. 1637) — the international tax bill containing numerous benefits provisions — failed to garner the 60 votes necessary to end debate and bring the legislation to a vote. The bill will now likely be tabled and may not receive further consideration until the summer.

As we reported in the March 23 Benefits Byte, S. 1637 contains 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 (Sections 671-675, Pages 517-539 of the bill text).

S. 1637 also contains a provision to extend the existing mental health parity law until December 31, 2005 (Section 701, Page 539 of the bill text) and a retiree health section extending the permitted transfer of excess pension assets for retiree health care costs through December 31, 2013 and allowing employers to make cost reductions without reducing the number of covered retirees (Section 719, Page 555 of the bill text).

The House of Representatives version of the international tax bill, the American Jobs Creation Act (H.R. 2896), contains similar provisions regarding nonqualified deferred compensation but does not contain the mental health parity or retiree health provisions. Consideration of H.R. 2896 in the House is still pending. Should S. 1637 receive further consideration in the Senate, the Council will keep you informed. For more information, contact Diann Howland, Council vice president, retirement policy, Lynn Dudley, Council vice president and senior counsel, or Maria Ghazal, Council director, health policy, at (202) 289-6700.

IRS Proposed Regs Allow Elimination of Optional Forms of Benefit in DB Plans

On March 23, the Treasury Department and the Internal Revenue Service (IRS) issued proposed regulations which would allow elimination of some optional forms of benefit in defined benefit pension plans if certain conditions are met. The regulations were proposed under Internal Revenue Code Section 411(d)(6) in response to a congressional directive contained in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). The directive allows the regulations to permit a plan to eliminate burdensome or complex options if the effect on plan participants is insignificant. The proposed regulations generally do not permit elimination of a lump sum benefit.

The proposed regulations provide plans with two methods of potentially eliminating optional forms. Under the first option, plans could eliminate options that are redundant (provided they are not "core" options described below) 90 days after the amendment is adopted. Options are redundant if they fall within the same "family" of optional forms — the regulations designate six option "families":

  • 50 percent or more joint and survivor annuity
  • Less than 50 percent joint and survivor annuity
  • 10 years or less term certain annuity
  • Greater than 10 years term certain annuity
  • 10 years or less of installment payments
  • Greater than 10 years installment payments

As an alternative, plans could generally eliminate other optional forms of benefit, four years after the amendment is adopted, if the plan provides the following four "core" benefit options:

  • Straight life annuity
  • 75 percent qualified joint and survivor annuity
  • 10 year certain annuity
  • Most valuable option for participant with a short life expectancy

The IRS has requested comments on the proposed regulations, due June 22, with a hearing scheduled for June 24. The Council expects to file a comment letter on these proposed regulations. 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.