BENEFITS BYTE

June 24, 2004
BB 04—72

In this issue:

  • Council Testifies Before IRS on Pension Plan Benefit Option Regulations
  • Senate Democrats Urge Stronger Protections for Employer-Sponsored Prescription Drug Coverage for Retirees

Council Testifies Before IRS on Pension Plan Benefit Option Regulations

On June 24, Jason Bortz, a partner with the Benefits Group of Davis and Harman LLP, testified on behalf of the Council at an Internal Revenue Service (IRS) hearing on recently proposed regulations on retirement plan benefit options. Of the three witnesses called to testify before the IRS panel, the Council was the only employer representative.

Bortz's testimony closely followed the Counci's June 22 comment letter with the Internal Revenue Service regarding the proposed regulations to reduce benefit options for defined benefit plans under Code section 411(d)(6). Specifically, Bortz discussed simplifying the 90-day approach, replacing actuarial assumptions, increasing the flexibility of the "de minimis test" determinations, contingent event benefits, coordinating with the minimum required distribution rules, and simplifying the "redundant options" approach by basing the fund families on the core options.

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

Senate Democrats Urge Stronger Protections for Employer-Sponsored Prescription Drug Coverage for Retirees

In a June 18 letter to Health and Human Services (HHS) Secretary Tommy Thompson, thirty-six Senate Democrats led by Senator Jay Rockefeller (D-WV) urged the Department to "use all administrative authority available ... to ensure that retirees are protected" from possible losses or reductions in coverage after Medicare begins covering prescription drugs in 2006.

The Senators requested that HHS act to deny full subsidy payments to employers that reduce the value of their retiree prescription drug coverage by requiring retirees to pay a greater portion of the premium or by other increases in cost-sharing. Starting in 2006, employers that provide retiree prescription drug coverage that is at least equal in actuarial value to the drug benefit available under Medicare will qualify for new tax-free payments of 28 percent of the cost of the prescription drug expense incurred by each Medicare-eligible retiree between $250 and $5,000. There is no provision in the new Medicare legislation for partial subsidy payments as the Senators have requested.

The letter also went on to criticize the Medicare law for providing a lower subsidy payment for employers that retain their prescription drug plans for retirees than the savings employers could obtain if a retiree elects to enroll in one of the private health plan options which will cover prescription drugs beginning in 2006. "This subsidy differential," the Senators complained, "creates a strong incentive for employers to drop their existing retiree drug coverage and enroll their retirees in less comprehensive Medicare plans."

Finally, the Senators claimed the law will penalize employers that provide coverage beyond the level of the new Medicare drug benefit because supplemental drug coverage will not count toward the out-of-pocket limits in the Medicare drug benefit, above which the federal government will pay 95 of all further prescription expenses incurred by the retiree. This rule, they claimed, means that employers will have little incentive to maintain benefits beyond those provided by Medicare.

New HHS guidance on the employer payments under Medicare is not expected until mid or late July at the earliest and it will be followed by a 60-day public comment period once issued. The Council continues to provide technical assistance to agency staff working on the proposed rule and we intend to submit comments on the guidance after it is released next month. For additional information please contact Paul Dennett, Council vice president, health 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.