BENEFITS BYTE

June 17, 2004
BB 04—68

In this issue:

  • House Passes International Tax Bill with Benefits Provisions
  • Harkin Sends Letter to Treasury on Relative Value Regulations
  • 21st Century Healthcare Caucus Established in House of Representatives
  • Council Submits Statement for Ways and Means Subcommittee Hearing on SSNs

House Passes International Tax Bill; Includes Provisions on Deferred Compensation, Mental Health Parity, Stock Program Payroll Withholding

On June 14, the full House of Representatives approved the American Jobs Creation Act (H.R. 4520) by a vote of 251-178. As we have reported in prior Benefits Bytes, H.R. 4520 contains a number of benefits-related provisions.

  • H.R. 4520 contains extensive deferred compensation provisions that will affect common nonqualified arrangements including those that are used to make up benefits lost due to the qualified plan limits. The Senate has already passed a comparable international tax bill containing deferred compensation provisions, the Jumpstart Our Business Strength Act (S. 1637). The Council described these provisions in detail in the June 10 Benefits Byte, and has made available a set of talking points on these provisions. Report language provided by the House Ways and Means Committee (See Pages 274-281) adds several sentences to the paragraph regarding the timing of nonqualified deferred elections to give more flexibility on elections with respect to multiple-year incentive plans, but not for annual bonuses.

  • The bill includes a provision to extend the existing mental health parity law for an additional year until December 31, 2005. This provision is identical to one included in S. 1637. The Council described the outlook for mental health parity legislation in the June 16 Benefits Byte.

  • The bill also contains provisions favored by the Council that would eliminate 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 Incentive Stock Options (ISOs) or purchase stock under Employee Stock Purchase Plans (ESPPs). The Senate-passed corporate tax bill (S. 1637) does not include the same provision.

Timing is still uncertain for a congressional conference to reconcile the House and Senate bills.

For more information on the deferred compensation provisions, contact Lynn Dudley, Council vice president and senior counsel. For more information on the mental health parity provision of H.R. 4520, please contact Maria Ghazal, Council director, health policy. For more information on the payroll tax withholding issue, contact Jan Jacobson, Council director, retirement policy. All may be reached at (202)289-6700.

Harkin Sends Letter to Treasury on Relative Value Regulations

Senator Tom Harkin (D-IA) recently sent a letter to U.S. Treasury Department Secretary John Snow stating he would not object to a delay in the effective date of the requirements of the relative value regulations that apply to optional forms of benefit other than lump sum payments. Harkin's letter was sent after Council members and staff met with his staff to voice our concern about the regulation and the need for a delay. The Council requested a total delay and continues to lobby other members of Congress, asking them to weigh in with the Treasury Department. Council staff has also discussed the issue with IRS and Treasury personnel.

In his letter to Treasury, Harkin emphasized that, as spelled out a prior letter to Treasury dated January 28, 2000, participants need "clear and specific information on the relative values of lump sum [payments]...especially where the annuity has a greater actuarial value than the lump sum payable at the same date."

Council members should note the effects of regulations on defined contribution plans. Although the relative value regulations primarily affect defined benefit plans, plan sponsors and service providers should note that the regulations will also apply to some defined contribution plans — such as money purchase pension plans — where the benefit can be paid out in the form of an annuity. The regulations require that the plan provide a description of the financial effect of election of optional forms of benefit, including a statement that the annuity will be provided by purchasing an annuity contract from an insurance company with the participant's account balance under the plan. If disclosed to the participant, the description of the financial effect can use reasonable estimates of amounts that would be payable under a purchased annuity contract, including reasonable estimates of the applicable interest rate under 417(e)(3). More exact information applicable to the participant must be provided upon request. For more information, contact Jan Jacobson, Council director, retirement policy, at (202) 289-6700.

21st Century Healthcare Caucus Established in House of Representatives

On June 17, Representative Patrick Kennedy (D-RI) announced the formation of a new Congressional caucus that will focus on reducing medical errors and waste in the healthcare system and improving the quality of healthcare in the United States. The "21st Century Healthcare Caucus" has three main goals according to a press release issued by Kennedy, including "(1) changing financial incentives so that providers are rewarded, not penalized, for improving patient outcomes; (2) bringing the transformative power of information technology to every corner of the healthcare industry, and; (3) better developing the science of delivering healthcare." The new caucus is bipartisan and will be co-chaired by Kennedy and Rep. James Greenwood (R-PA). The vice-chairs will be Reps. Anna Eshoo (D-CA) and Charles Norwood (R-GA). For more information, contact Maria Ghazal, Council director, health policy, at (202) 289-6700.

Council Submits Statement for Ways and Means Subcommittee Hearing on SSNs

On June 15, the House of Representatives Ways and Means Subcommittee on Social Security held a hearing on Enhancing Social Security Number (SSN) Privacy. The hearing was held to examine how criminals use SSNs to commit identity theft, the impact on victims, and to receive feedback from from the public and private sector regarding the Social Security Number Privacy and Identity Theft Prevention Act (H.R. 2971).

While none of the hearing witnesses addressed benefits issues specifically, the Council — in conjunction with nine other trade and business groups — submitted a group statement for the hearing record in which the groups applaud the subcommittee's recognition of the importance of voluntary employee benefit plans. Specifically, the groups lauded the specific language of H.R. 2971 ensuring that the provision of and administration of these plans will not be hindered by the legislation.

For more information, contact Jan Jacobson, Council director, retirement 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.