April 26, 2004
BB 04—51

In this issue:

  • New Legislation Introduced to Curb Stock Option Cash-Outs
  • IRS Provides More Guidance on Determination Letter Program
  • American Benefits Council IN THE NEWS: EEOC Decision to Make Retiree Health Rule Permanent Features Council Comments

New Legislation Introduced to Curb Stock Option Cash-Outs

On April 22, Representative Barney Frank (D-MA) introduced the Executive Stock Option Profit Recapture Act (H.R. 4208). Under this legislation, the five highest-paid executives of a public company would be compelled to forfeit any profits gained on stock options if the company's stock price declined "by a material amount" in the year after those options were exercised. The bill directs the Securities and Exchange Commission (SEC) to issue rules that would include guidance on what constitutes "a material amount."

Already pending in the House of Representatives is the Stock Option Accounting Reform Act (H.R. 3574), introduced by Representative Richard Baker (R-LA). H.R. 3574 requires expensing for stock options provided to the top five executives (the chief executive officer and next four most highly compensated employees) but not for stock options provided to rank-and-file employees. This bill would override the the Financial Accounting Standards Board's (FASB) proposal to mandate expensing of all stock options.

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

IRS Provides More Guidance on Determination Letter Program

On April 23, the IRS officially announced plans to implement a system of staggered remedial amendment periods for individually designed plans and a six-year amendment/approval cycle for pre-approved plans. The IRS provided an update on the determination letter program in Announcement 2004-32 and a request for comments on a draft revenue procedure for pre-approved plans in Announcement 2004-33. The guidance followed a review of comments received in response to previous IRS releases – including two white papers – about the future of the determination letter program.

The IRS plans to implement the new system when it opens the determination letter program for the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). Individually designed plans would be required to submit determination letter applications no more than once every five years. (According to previous informal pronouncements by the IRS, the staggered period for individually designed plans would be based on the last digit of the employer's identification number.)

For pre-approved plans, which includes master and prototype (M&P) and volume submitter (VS) plans, all pre-approved defined contribution plans would be required to be updated and submitted for approval during the first year of a six-year cycle. The IRS would process these applications in years two and three. Pre-approved defined benefit plans would be updated and submitted in the third year of the cycle and the IRS would process the applications in years four and five. Two significant changes were outlined in Announcement 2004-33 for pre-approved plans:

  • VS plans may (but are not required to) include a provision that allows the VS practitioner to amend the plan on behalf of adopting employers for changes in the Internal Revenue Code, regulations, revenue rulings, etc. The VS practitioner must maintain a record of the employers that have adopted the plan and must make reasonable and diligent efforts to ensure that adopting employers have actually received and are aware of all plan amendments.

  • Adopting employers of nonstandardized defined contribution M&P plans can adopt an allocation formula that is designed to be cross-tested for nondiscrimination on the basis of equivalent benefits under Treasury regulation 1.401(a)(4)-8.

The guidance does not require annual plan updates, although the IRS reserves the right to revisit this option in the future. Comments are due August 2, 2004. For more information, contact Jan Jacobson, Council director, retirement policy, at (202) 289-6700.

American Benefits Council IN THE NEWS:
EEOC Decision to Make Retiree Health Rule Permanent Features Council Comments

In response to the Equal Employment Opportunity Commission's (EEOC's) April 22 decision to finalize its retiree health rule and the subsequent news coverage, the Council was interviewed by a number of major newspapers and several national networks. Council staff were featured in broadcast interviews telecast on April 23 on ABC World News Tonight, NBC Nightly News, and CNBC's The News with Tyler Mathisen, and on radio on Minnesota Public Radio's Marketplace. These were in addition to interviews featured on local news broadcasts of the 21 affiliate stations of Belo Communications' Capital Bureau.

Print stories of interest featuring quotes from Council staff include:

  • AARP to fight benefits ruling (Julia Malone, Cox News Service, April 24) (Also appeared in the Atlanta Journal-Constitution; Indianapolis Star; Lexington Herald Leader; Miami Herald; Palm Beach Post)
  • Seniors lobby promises fight over health care benefits (Julia Malone, Ray Weiss, and Jim Haug, Cox News Service and Daytona Beach News-Journal, April 24)
  • EEOC defends ruling on retiree benefits (Margaret Steen, San Jose Mercury News, April 24) (Also appeared in the and Twin Cities Pioneer Press)
  • Commission to Allow Insurance Cuts for Retired Employees (Robert Pear, New York Times, April 23) (Also appeared in the Atlanta Journal-Constitution; Charlotte Observer; Columbia (SC) State; Contra Costa (CA) Times; Denver Post; Duluth (MN) News Tribune; Fort Worth Star-Telegram; Houston Chronicle; Indianapolis Star; International Herald Tribune; Los Angeles Daily News; Milwaukee Journal Sentinel; Ocala Star Banner; Orlando Sentinel; Pittsburgh Post-Gazette; Salt Lake City Tribune and Deseret Morning News; San Francisco Chronicle; San Jose Mercury News; Seattle Post Intelligencer; Spartanburg (SC) Herald Journal; Twin Cities (MN) Pioneer Press; and Wilmington (NC) Star)
  • Kiss those benefits goodbye? (CBS, April 23) (also posted by affiliate stations in Chicago, IL; Denver, CO; Minneapolis, MN; New York, NY; Salt Lake City, UT)
  • Retirees bemoan benefit law (Ed Tibbetts, Quad City Times, April 23)
  • EEOC approves age bias exemption rule for Medicare-related retiree health plans (Nancy Montweiler, BNA's Health Care Daily, April 23) (requires a subscription to view)
  • EEOC Approves ‘Erie County' Exemption (Fred Schneyer,, April 23)

Despite the fact that Council staff are well represented in these stories, the coverage at the end of last week was heavily biased in favor of AARP's opposition to the EEOC rule. To counter any misinformation, the Council sponsored a media briefing via conference call on April 26. Reporters were given background information on retiree health care benefit plans, the impact on employer-plan sponsors of the EEOC rule and the Erie County Retirees Association v. The County of Erie case, and the likelihood that other federal agencies such as the U.S. departments of Health and Human Resources and Labor may elect to comment on this rule during the interagency review process before the rule become final by being published in the Federal Register.

As other stories of note appear, the Council will keep you informed. For more information about any of these articles, please contact Deanna Johnson Keim, APR, Council director, communications, or Jason Hammersla, Council communications associate. Both can be reached by phone 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.