BENEFITS BYTE

September 23, 2004
BB 04—94

In this issue:

  • House Democrats Offer Amendments Opposing HSAs for Federal Employees
  • PBGC Issues Technical Update for Underfunding Notices
  • IRS Changes Litigation Position on Pension Assets in Bankruptcy Cases

House Democrats Offer Amendments Opposing HSAs for Federal Employees

On September 15, Representative Jim Moran (D-VA) offered an amendment to the Transportation, Treasury and Independent Agencies Appropriations Act (H.R. 5025) which would have prohibited the Office of Personnel Management from offering HSAs through the Federal Employees Health Benefits Plan (FEHBP). The amendment ultimately failed by a vote of 181-223. Moran argued that HSAs promote adverse selection and ultimately lead to higher health care costs for employees and their families. Republican members took to the floor to defend HSAs, and argued that, at a minimum, federal employees should have the same choices as other Americans regarding their health care options.

Another amendment to H.R. 5025 was offered on HSAs on September 21. Delegate Eleanor Holmes Norton (D-DC) offered an amendment to require any federal employee choosing a high-deductible health plan (HDHP) to remain in the HDHP for at least three years from the date of enrollment. The amendment, which failed by a vote of 175-224, was another attempt by House Democrats to limit the use of HSAs by federal employees enrolled in the FEHBP. The issue of whether an employer may impose a similar requirement on their own employees electing HSAs to discourage adverse selection is an open issue and one of interest to some Council members.

For more information on the legislative action summarized above, please contact Maria Ghazal, Council director, health policy, at (202) 289-6700. For more information on Health Savings Accounts please contact Susan Relland, Council health policy legal counsel, at (202) 289-6700.

PBGC Issues Technical Update for Underfunding Notices

The Pension Benefit Guaranty Corporation (PBGC) recently issued Technical Update 04-4, providing guidance on determining whether a qualified defined benefit plan is required to notify participants and beneficiaries of the plan’s funding status and the limits of PBGC indemnity. Certain underfunded plans are required to provide this notice.

The PBGC guidance includes a Model Participant Notice, as well as a detailed description of the rules governing the requirement to issue a 2004 Participant Notice, and a worksheet to help plan administrators determine whether the notice is necessary.

The guidance also explains how the interest rate changes enacted by the Job Creation and Worker Assistance Act of 2002 and the Pension Funding Equity Act of 2004 can affect the requirement to issue a 2004 Participant Notice or the plan funding information required to be disclosed. The Participant Notice is due two months after the due date (including extensions) for the plan’s 2003 5500 (annual report) filing, but due dates that fall on a weekend or Federal holiday are extended to the next business day. For example, if the 2003 5500 filing was due September 15, 2004, the notice must be provided by Monday, November 15.

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

IRS Changes Litigation Position on Pension Assets in Bankruptcy Cases

In September, the Internal Revenue Service (IRS) published a notice indicating that it will change its position in future bankruptcy court filings to exclude the value of the debtor’s interest in pension plans from its secured claim. The notice acknowledged that the U.S. Supreme Court had previously ruled that the anti-alienation clause under the Employee Retirement Income Security Act (ERISA) constituted a restriction on transfer enforceable under "applicable nonbankruptcy law" and that, accordingly, the pension plan assets were excluded from the debtor’s bankruptcy estate.

Other courts have held that the anti-alienation provision of ERISA was ineffective against federal tax liens and the IRS had been arguing (with mixed success) that its secured claim includes the value of the debtor’s interest in a pension plan that was subject to a federal tax lien. The notice indicates that the IRS will no longer make this argument but indicates that the debtor’s interest in the pension plan is not extinguished by the bankruptcy proceeding. Therefore, the IRS’s lien will continue to exist outside of the bankruptcy proceeding, according to the notice. 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.