September 29, 2004
BB 04—99

In this issue:

  • IBM Reaches Agreement with Cooper Plaintiffs, Plans Appeal
  • Council Files Comments on Proposed Medicare Prescription Drug Coverage Regulations
  • House Conferees Announced for International Tax Bill

IBM Reaches Agreement with Cooper Plaintiffs, Plans Appeal

According to a September 29 news release, IBM has reached an agreement with the plaintiffs in the class-action case of Cooper et al v. IBM in the U.S. District Court for the Southern District of Illinois. In July 2003, the court ruled that the IBM cash balance plan violated the age discrimination provisions of ERISA, contrary to the legislative history of ERISA and several other federal court cases.

Under the agreement, still subject to final approval by the Court, the judge will not rule on remedies and IBM retains its right to appeal the prior court decision on the cash balance aspects of the suit to the Seventh Circuit Court of Appeals.

Specifically, the agreement provides that the plaintiffs would be eligible to receive an incremental pension benefit worth approximately $300 million (including plaintiffs' attorney's fees) in exchange for the settlement of certain claims unrelated to the cash balance aspects of the suit. Separately, IBM and the plaintiffs negotiated a stipulated remedy in the event that IBM loses the appeal on the cash balance claims. Under the stipulated remedy, IBM's potential liability for the claims being appealed is capped at $1.4 billion. If IBM prevails on the claims being appealed, there will be no additional liability.

We will continue to follow this case as it progresses through the appeals process.

Council Files Comments on Proposed Medicare Prescription Drug Coverage Regulations

On September 28, the Council and the U.S. Chamber of Commerce (the Chamber) filed a joint comment letter on the proposed regulations to implement the new Medicare prescription drug benefit under the Medicare Modernization Act of 2003 (MMA) issued by the Centers for Medicare & Medicaid Services (CMS). The Council and the Chamber commended the agency for issuing proposed rules that clearly aim to achieve the congressional goals of maximizing the number of retirees with employer-provided retiree drug coverage; maximizing the generosity of their coverage; minimizing administrative burden while maximizing flexibility for employers and unions; precluding "windfalls"; and limiting overall cost to the federal government.

First among the Council and Chamber's comments was a recommendation that CMS issue a final rule as early as possible in January 2005 and to issue non-regulatory guidance addressing key issues for employers even earlier, since many large employers will need considerable lead time to implement a new benefit design or option.

The comments also addressed the following key issues:

  • the determination of actuarial equivalence;
  • the proposed definition of a "plan" for purposes of actuarial equivalence;
  • the need for guidance on waiver options for employer groups;
  • allocation of employer and retiree contributions for medical insurance and prescription drugs;
  • notice of creditable coverage;
  • treatment of disabled Medicare beneficiaries for purposes of actuarial equivalence; and
  • payments from Health Savings Accounts (HSAs), Health Reimbursement Arrangements (HRAs) and Flexible Spending Arrangements (FSAs) counting toward True-Out-Of-Pocket (TrOOP — provisions of the legislation which determine the spending limit after which Medicare catastrophic coverage for prescription drug expenses begins).

The deadline to comment on the proposed rules is October 4, 2004. The Council and the Chamber intend to submit a second letter of comment addressing additional operational and technical issues, prior to the deadline. For additional information, please contact Paul Dennett, Council vice president, retirement policy, or Susan Relland, Council health policy legal counsel, at (202) 289-6700.

House Conferees Announced for International Tax Bill

The House of Representatives has named the conferees set to reconcile the different versions of the international tax bills (the American Jobs Creation Act (H.R. 4520) from the House and the Jumpstart Our Business Strength Act (S. 1637) from the Senate.) Both bills include provisions requiring significant changes to current deferred compensation practices, raising between $800 million and $1 billion over a 10 year period. (A side-by-side review of both bills' deferred compensation proposals is available on the Council Web page. The House bill also includes provisions related to payroll tax withholding obligations on Incentive Stock Options (ISOs) and Employee Stock Purchase Plans (ESPPs).

The conferees are as follows:

Joe Barton (R-TX)
Richard Burr (R-NC)
John Boehner (R-OH)
Philip Crane (R-IL)
Tom DeLay (R-TX)
Bob Goodlatte (R-VA)
Sam Johnson (R-TX)
Jim McCrery (R-LA)
James Sensenbrenner (R-WI)
Lamar Smith (R-TX)
Bill Thomas (R-CA)

John Conyers (D-MI)
Sander Levin (D-MI)
George Miller (D-CA)
Charles Rangel (D-NY)
Charles Stenholm (D-TX)
Henry Waxman (D-CA)

For more information on the executive compensation provisions, contact Lynn Dudley, Council vice president and senior counsel. For more information on the payroll tax withholding issue, contact Jan Jacobson, Council director, retirement policy. Both may be reached 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.