BENEFITS BYTE

May 17, 2004
BB 04—57

In this issue:

  • Council Testifies for Senate Aging Panel, Conducts Senate Staff Briefing: EEOC Rule Helps Restore Common Sense to Retiree Health Coverage
  • Subcommittee Approves Baker Option Expensing Limitation Bill

Council Testifies for Senate Aging Panel, Conducts Senate Staff Briefing: EEOC Rule Helps Restore Common Sense to Retiree Health Coverage

The Council was the sole business community representative at two sessions in the U.S. Senate over the past several days dealing with retiree health coverage. Council President James Klein told the Senate Special Committee on Aging at a May 17 hearing that the finalization of the Equal Employment Opportunity Commission's (EEOC) ruling exempting retiree health benefits from the Age Discrimination in Employment Act (ADEA) will not "break new policy ground on this issue but will instead help restore us to what we always understood the law was" prior to an anomalous decision in the so-called Erie County case four years ago.

Klein testified that employers are facing enormous pressures in providing retiree health benefits, brought about by escalating health costs, accounting for plan liabilities on corporate balance sheets, and the current lack of tax-favored savings vehicles by which employees can pre-fund these costs. The Council used the opportunity of this hearing to not only make the case as to why the Erie County case was wrongly decided and why the EEOC rule is helpful, but also to advocate for congressional consideration of measures to permit pre-funding of retiree health benefits.

The Council's written testimony made a number of recommendations that would allow workers additional means to prepare for and pay for retiree health care in the future, including the establishment of Retiree Medical Benefit Accounts (RMBAs), the utilization of existing individual and workplace savings under 401(k) and IRA plans, and expansion of the new Health Savings Accounts (HSAs) created under the Medicare Modernization Act of 2003. The Council also expressed support for provisions of the Pension Preservation and Savings Expansion Act of 2003 (H.R 1776), introduced by Representatives Rob Portman (R-OH) and Ben Cardin (D-MD), which would allow retirees to use retirement plan distributions on a pre-tax basis to pay their share of the cost of retiree health plan coverage (including coverage under a qualified long-term care insurance contract). The bill would also expand so-called Section 401(h) accounts to fund retiree health benefits through profit-sharing or stock bonus plans and not just as a part of a defined benefit or money purchase pension plans, as is the case under current law.

Aging Committee Ranking Member John Breaux (D-LA) pressed the witnesses hard on the concern that, absent the EEOC's rule, employers will be compelled to reduce coverage for pre-65 retirees. In conclusion, Breaux urged those testifying at the hearing to work together to present Congress with a legislative resolution to their differing opinions rather than move this argument into the federal court system following the rule's finalization.

Leading up to the hearing, in response to an influx of negative press stories and contacts to congressional offices by AARP members, the Council joined with the National Rural Electric Cooperative Association and two teachers' unions — the American Federation of Teachers and the National Education Association — on May 13 to hold a briefing on this issue for Senate offices. The briefing was attended by more than 40 Senate staff members.

For more information on retiree health care issues, please contact Paul Dennett, Council vice president, health care; Maria Ghazal, Council director, health care; or Susan Relland, Council health care legal counsel, at (202) 289-6700.

Subcommittee Approves Baker Option Expensing Limitation Bill

On May 12, the House Financial Services Subcommittee on Capital Markets, Insurance, and Government-Sponsored Enterprises approved by voice vote a slightly modified version of the Stock Option Accounting Reform Act (H.R. 3574). This bill would require companies to expense stock options granted to the top five executives but not require expensing for stock options granted to other employees. H.R. 3574, introduced by Subcommittee Chairman Richard Baker (R-LA), was the subject of several hearings by the Subcommittee.

The bill counteracts a proposal by the Financial Accounting Standards Board (FASB) to require stock options to be counted as an expense on the date of grant for all employees. Baker indicated that he hopes the full Financial Services Committee will consider the bill before the August recess, but had not yet spoken with committee Chairman Michael Oxley (R-OH), in terms of finalizing plans.

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.