April 8, 2004
BB 04—45

In this issue:

  • Pension Interest Rate Replacement Legislation Approved by Senate, Awaits Presidential Signature
  • Senate Again Fails to Invoke Cloture on Targeted Medical Liability Bill
  • IRS Letter Allows Higher Automatic Enrollment Levels
  • DOL Issues Guidance that HSAs are Generally Not Subject to ERISA

Pension Interest Rate Replacement Legislation Approved by Senate, Awaits Presidential Signature

On April 8, the Senate approved the conference report of the Pension Funding Equity Act (H.R. 3108) by a vote of 78-19. The bill will now proceed to the President, who is expected to sign the bill into law. According to Treasury Department officials, the guidance on the corporate bond rate is drafted and should be released the day the President signs the bill.

This measure, which was approved by the House of Representatives in a 336-69 vote on April 2, contains 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. The final bill also includes deficit reduction contribution relief for airlines and steel and a modest multiemployer relief provision. H.R. 3108 will also permit the use of the 30-year Treasury rate for purposes of maximizing the limit on deductible contributions, so that employers that want to make larger contributions may do so.

We thank Council members for all their lobbying efforts over the last several weeks. For more information, contact Diann Howland, Council vice president, retirement policy, at (202) 289-6700.

Senate Again Fails to Invoke Cloture on Targeted Medical Liability Bill

On April 7, Senate Republicans failed to obtain the 60 votes needed to invoke cloture (and therefore end debate) and proceed to a vote on the Pregnancy and Trauma Care Access Protection Act (S. 2207). This bill seeks to place federal caps on damages awarded in lawsuits connected to obstetrical or gynecological goods and services and emergency and trauma care services. The vote to invoke cloture was 49-48 with Senators Lindsey Graham (R-SC), Mike Crapo (R-ID) and Richard Shelby (R-AL) voting with the Democrats and Senator Zell Miller (D-GA) voting with the Republicans. Three senators were absent for the vote.

S. 2207, 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 and emergency and trauma care services. The Council, along with 25 other companies and organizations, sent a letter to all senators expressing strong support for S. 2207.

S. 2207 was the latest in a series of medical liability bills Senate Republicans have proposed aimed at providing relief for specific medical specialties that are experiencing the highest medical malpractice insurance increases. Democrats are expected to continue to block GOP attempts to vote on a medical liability bill this year, so the issue is essentially stalled for the remainder of this session of Congress. 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.

IRS Letter Allows Higher Automatic Enrollment Levels

In a March 17 guidance letter to Brookings Institution Nonresident Senior Fellow J. Mark Iwry, the Internal Revenue Service (IRS) confirmed that companies are permitted to automatically enroll their employees in defined contribution plans with default contribution levels higher than 3 percent. The 3 percent figure had been used by IRS in formal examples of automatic enrollment.

The letter also allows automatic contribution level increases at certain intervals, and sanctions so-called "Save More Tomorrow (SMarT)" plans, under which employers may enroll participants at a low contribution level and automatically raise that level upon salary increases or bonuses.

In all cases, the employer must give the plan participant clear notification of the contribution levels or increases. For more information, contact Jan Jacobson, Council director, retirement policy, at 202-289-6700.

DOL Issues Guidance that HSAs are Generally Not Subject to ERISA

On April 7, the Department of Labor (DOL) issued Field Assistance Bulletin 2004-01, which concludes that Health Savings Accounts (HSAs) are generally not subject to ERISA, even if sponsored by an employer. The agency's reasoning is that HSAs are personal savings vehicles and the beneficiaries have "sole control and are exclusively responsible for expending the funds in compliance with the requirements of the [Internal Revenue] Code." According to the Bulletin, employer contributions would not "give rise to an ERISA-covered plan where the establishment of the HSAs is completely voluntary on the part of the employees and the employer does not:

    (i) Limit the ability of eligible individuals to move their funds to another HSA beyond restrictions imposed by the Code;
    (ii) Impose conditions on utilization of HSA funds beyond those permitted under the Code;
    (iii) Make or influence the investment decisions with respect to funds contributed to an HSA;
    (iv) Represent that the HSAs are an employee welfare benefit plan established or maintained by the employer; or
    (v) Receive any payment or compensation in connection with an HSA."

The Bulletin continues that an employer may impose terms and conditions on contributions that are required to satisfy the Code or limit the forwarding of contributions through its payroll system to a single HSA provider, so long as the employer or HSA provider does not restrict the ability of the employee to move funds to another HSA. Note that these rules apply only to HSAs and do not affect whether the high deductible health plan that must be paired with them is subject to ERISA; those rules remain the same.

For more information, please contact 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.