March 30, 2004
BB 04—40

In this issue:

  • Pension Bill Conference Remains Stalled
  • Treasury Releases Additional Guidance on HSAs

Pension Bill Conference Remains Stalled

Conferees for the Pension Funding Equity Act (H.R. 3108) remain at a stalemate, and there are no signs that talks will resume soon. The House and Senate versions of H.R. 3108 both contain a two-year replacement of the defunct 30-year Treasury bond rate with a composite rate based on long-term corporate bonds for purposes of calculating plan liabilities and any Pension Benefit Guaranty Corporation variable rate premiums.

While negotiators have reportedly reached consensus on this and other provisions, they are still debating development of a threshold for determining which multiemployer plans would be eligible for a funding waiver. Despite the bipartisan efforts of several legislators, negotiators have been unable to craft a compromise that will satisfy both chambers as well as the Bush Administration.

Because of the impasse in negotiations, it was announced on March 30 that no further discussions have been scheduled. The Council will soon send out an Action Alert, urging members to contact Administration officials to convey the critical nature of this legislation and to request the Administration's assistance in bringing the conference process to closure. The Council is continuing its role as a resource to conferees and their staffs during the conference. We will keep you informed as developments unfold. For more information, contact Lynn Dudley, Council vice president and senior counsel, at (202) 289-6700.

Treasury Releases Additional Guidance on HSAs

On March 30, Treasury Department officials released new guidance on Health Savings Accounts (HSAs) in the form of two Notices (2004-23 and 2004-25), a Revenue Procedure (2004-22), and a Revenue Ruling (2004-38). The Council will hold a Benefits Briefing conference call to further explain and answer questions about this new HSA guidance at 3:30 p.m. ET on Tuesday, April 6. Details for this call will be e-mailed separately.

Treasury's guidance covered the following:

  • Preventive Care: Treasury created a safe harbor definition of preventive care that is intended to be illustrative but not exhaustive. Preventive care services may be offered without an individual being required to first satisfy a high deductible requirement. In addition, rather than creating a broad exception for state requirements, each state mandate will have to be measured against the general preventive care definition to determine if it fits within the new federal rule. Treasury is also seeking additional comments on a test they can use to determine whether or not other programs (such as employee assistance, wellness, disease management, or mental health programs) fit the definition of preventive care. They also have requested further comments on when prescription drugs may be considered to provide preventive care rather than treatment of an existing health condition.

  • Prescription Drug Carve-Out: Treasury took the position that the statutory language would disqualify from HSA eligibility a person who participates in a high deductible plan and a plan that provides first dollar prescription drug coverage in either the same plan or a separate plan or rider. Treasury did create limited transition relief; until January 1, 2006, an individual may enroll in a high deductible health plan (HDHP) that provides a first dollar drug benefit in a separate plan or rider (but not if drug benefits are part of the same plan and not subject to the high deductible requirement).

  • Retroactive Reimbursement Transition: To address the concern that some people have had trouble locating HSA custodians, Treasury provided a rule solely for 2004 that an individual can enroll in an HDHP and then, if it takes some time to establish an HSA, the individual can be retroactively reimbursed for any expenses incurred after the individual established the HDHP. This is an exception to the general rule that the HSA can only reimburse an individual for expenses incurred after the HSA is established. This rule is likely to benefit more people in the individual market than those receiving benefits through employer-sponsored HSAs.

Two key issues that were not addressed were the coordination of HSAs with flexible spending arrangements (FSAs) and health reimbursement arrangements (HRAs), and the ability of an employer to make matching contributions to an HSA without violating the comparable contribution rule. IRS officials have said that they expect to issue additional guidance in the next few weeks, including addressing the coordination issue. However, Treasury staff has reportedly expressed doubts about whether the legislation can be interpreted to allow an individual enrolled in an HSA to also participate in an HRA or FSA plan. Additional Treasury guidance is expected in June on other open issues.

Treasury also announced three new ways to get more information about HSAs:

Treasury has made the commitment to respond to all messages within five business days.

For more information, contact Paul Dennett, Council vice president, or Susan Relland, Council health policy legal counsel, 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.