BENEFITS BYTE

June 4, 2004
BB 04—62

In this issue:

  • Thomas Introduces New Version of International Tax Bill with Deferred Compensation Provisions
  • Senate HELP Committee Chairman Introduces Legislation to Permit Importation of Prescription Drugs

Thomas Introduces New Version of International Tax Bill with Deferred Compensation Provisions

House of Representatives Ways and Means Chairman Bill Thomas (R-CA) has introduced a new version of his international tax bill, "The American Jobs Creation Act" (H.R. 4520) which contains a number of provisions affecting deferred compensation arrangements, as well as the employee stock purchase plan (ESPP)/incentive stock option (ISO) payroll tax withholding issue.

The Council is still in the process of analyzing this new bill text, but we can report the following:

  • The new general effective date refers to amounts deferred after June 3, 2004. This is a change from Chairman Thomas' 2003 version, which at least gave approximately 2 months lead-time.
  • The "grandfather clause" protecting previously-existing arrangements applies to amounts deferred after June 3, 2004 and before January 1, 2005, pursuant to an irrevocable election or binding arrangement made before June 4, 2004. (Therefore, elections prior to June 4, 2004, made with respect to amounts to be deferred in 2004 would be grandfathered, but there would no grandfather clause applicable for amounts deferred in 2005 with respect to elections made later this year.
  • Within 90 days of enactment, the U.S. Treasury Department would be directed to issue guidance providing a period in which participants in plans adopted before June 4, 2004 may terminate participation or cancel outstanding deferral elections with regard to amounts earned after June 3, 2004.
  • The bill also contains provisions favored by the Council that would eliminate, via a statutory change, the IRS's ability to impose payroll tax withholding obligations under the Federal Insurance Contributions Act (FICA) and Federal Unemployment Tax Act (FUTA) when employees exercise ISOs or purchase stock under ESPPs. The IRS previously proposed imposing such withholding requirements but announced (in June 2002) an indefinite moratorium on the withholding obligation (employers were not required to withhold until further notice).

H.R. 4520 is scheduled to be reviewed by the Ways and Means Committee on June 10, 2004. House of Representatives GOP leaders reportedly hope to schedule a vote by the full House the week after that. We will provide a more thorough analysis of the legislation in the coming days. For more information, contact Lynn Dudley, Council vice president and senior counsel, at (202) 289-6700.

Senate HELP Committee Chairman Introduces Legislation to Permit Importation of Prescription Drugs

On June 2, Senator Judd Gregg (R-NH), Chairman of the Senate Health, Education, Labor and Pensions (HELP) Committee, announced the introduction of the "Safe Importation of Medical Products and Rx Therapies (IMPORT) Act (S. 2493) and announced his intention to schedule a committee vote on his bill sometime in July. Bill text is not yet available, although Sen. Gregg's office has provided a summary of the bill and a section-by-section description of the bill.

S. 2493 takes a somewhat more cautious approach to the idea of permitting importation of prescription drugs and is intended to be an alternative to the Pharmaceutical Market Access and Drug Safety Act (S. 2328), a bill introduced by Senators Byron Dorgan (D-ND), Edward Kennedy (D-MA), John McCain (R-AZ) and others last month. A side-by-side comparison of the two bills, also provided by Sen. Gregg, is available on the Council Web site.

The Gregg bill would immediately allow individuals to legally import prescription drugs (those approved by the Food and Drug Administration (FDA)) from an FDA-approved facility in Canada or a permitted European Union country into the United States for personal use. The drugs must be purchased from a licensed pharmacy and the quantity may not exceed a 90-day supply. The bill allows the importation of commercial quantities of FDA-approved prescription drugs by pharmacies and wholesalers within one year of enactment. The list of countries would be expanded to include up to 15 approved European Union countries within 3 years of enactment. The bill would authorize the FDA to establish a "user fee" program under which a drug importation facility, pharmacy, Internet pharmacy or wholesaler would be required to pay an annual fee to fund the enforcement provisions. In addition, Internet pharmacies would be required to register with the FDA and abide by federal licensing requirements.

The bill does not attempt to regulate the actions of U.S. pharmaceutical manufacturers as does S. 2328, which proposes to amend antitrust law to permit the government to impose penalties for any anticompetitive practices related to importing drugs to the United States. Sen. Gregg called this particular provision "unworkable and constitutionally questionable."

It appears increasingly likely that the Senate may consider some legislation to permit the importation of prescription drugs this year. There is bipartisan support for the idea and Senate Majority Leader Bill Frist (R-TN) promised the Senate would consider the issue as a concession to lifting a "hold" that had been placed on the nomination of Mark McClellan to be Administrator of the Centers for Medicare and Medicaid Services (CMS). The Council has the issue on the agenda for our Health Policy Committee meeting on June 8, 2004, in Washington, D.C., and a representative of the FDA will address the committee to present the agency's views. For more information, contact Maria Ghazal, Council director, health policy, at (202) 289-6700.

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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.