BENEFITS BYTE

October 7, 2004
BB 04—105

In this issue:

  • House and Senate Set to Vote on Deferred Compensation Legislation; Conference Report Available, Briefing Call Scheduled
  • Council Organizes Employer Organization Letter to Treasury on FSA Rollover; Capitol Connection Letter Available
  • House Approves Resolution Urging Health Insurers to Promote Healthy Lifestyles
  • HHS Health Quality Agency Announces Web Conferences on Value-Based Purchasing

House and Senate Set to Vote on Deferred Compensation Legislation, Conference Report Available

As previously reported the House and Senate are expected to vote before the end of the week on the final version of the tax bill (H.R. 4520/S. 1637) approved by the conference committee, containing nonqualified deferred compensation provisions. Legislative text (beginning on Page 582), as well as the conference report (beginning on Page 510) is now available.

In general, the final bill follows the House-passed version of the bill. Additional provisions relating to investment control and the prohibition on the deferral of gain on equity-based compensation are not included in the final bill. The new rules would generally be applicable to deferrals after December 31, 2004. The legislation does contain a grandfather rule, and conference report language clarifies that existing plan rules— including subsequent deferral provisions — would continue to be applicable to those amounts.

The conference report also includes language allowing the Treasury Department to issue guidance regarding supplemental pension plans. While stock appreciation rights (SARs) programs are still covered by the definition of deferred compensation, Treasury is granted authority to issue guidance affecting SARs as well. There remains a lack of clarity regarding fiscal year plans and the timing of elections, but in general, elections relating to performance-based pay would be required to be made no later than six months prior to the end of the service period. The term "performance-based pay" is to be defined by the Treasury Department but the conference report gives some direction regarding the definition.

The Council has submitted a list of technical issues to conferee staff members after gathering input from the rest of the business community regarding the conference report language. The Council is continuing to work with Treasury and the Internal Revenue Service regarding issues that can be addressed through guidance. The Council will hold a Benefits Briefing conference call on Tuesday, October 12, at 2:00 p.m. (Eastern Time) regarding the deferred compensation legislation. For more information, contact Lynn Dudley, Council vice president and senior counsel, at (202)289-6700.

Council Organizes Employer Organization Letter to Treasury on FSA Rollover; New Capitol Connection Letter Available

On October 7, the Council and twelve other organizations sent a letter to Treasury Secretary John W. Snow urging the Department to use its authority to modify the "use it or lose it" rule that applies to health flexible spending arrangements (FSAs). The Council drafted the letter and obtained the support of the other employer organizations who signed the letter.

The FSA "use it or lose it" rule was created administratively through proposed Treasury Department regulations that were never finalized. Consequently, the Council and the other organizations who signed the letter believe the Internal Revenue Service (IRS) should propose and finalize a new rule that would permit a limited dollar carry-forward in a health FSA — to be distributed for qualified health expenses only — without the need for additional legislation from Congress. Senate Finance Committee Chairman Charles Grassley (R-IA) his own letter to Treasury in August 2004, urging that Treasury follow this course.

The Council strongly supports elimination of the "use it or lose it rule" and has met with Treasury staff to provide both policy arguments and technical assistance as Treasury staff consider whether the Department has the authority to modify the rule and how such a modification could be structured to ensure it complies with other tax law provisions. A provision of the House-passed Medicare Modernization Act of 2003 would have permitted a $500 rollover of unspent FSA funds, but the provision was dropped prior to enactment.

The Council has also prepared a letter to Secretary Snow on the Capitol Connection Center of the Council's Web site. We urge Council members who support a modification of the “use it or lose it” rule for FSAs to print and send this letter to Secretary Snow. For more information, please contact Paul Dennett, Council vice president, health policy, or Maria Ghazal, Council director, health policy, at (202) 289-6700.

House Approves Resolution Urging Health Insurers to Promote Healthy Lifestyles

On October 7, the House of Representatives approved by voice vote a resolution (H.Con Res. 34) expressing the sense of Congress that private health insurance companies should take a proactive role in promoting healthy lifestyles, including providing discounted premiums to those who exercise regularly. The resolution, which was sponsored by Representative Karen McCarthy (D-MO), also applauded private health insurance companies that are already taking these actions. For more information, please contact Maria Ghazal, Council director, health policy, at (202) 289-6700.

HHS Health Quality Agency Announces Web Conferences on Value-Based Purchasing

The Agency for Healthcare Research and Quality (AHRQ) is sponsoring two free web conferences later this month to help purchasers better understand strategies and tools to implement value-based purchasing programs. The first session, "Paying for Performance", will be held Thursday, October 21 from 3:00 to 4:30 p.m. (Eastern Time) and will examine evidence on the results to date for health purchasing programs that use quality measures to reward the performance of health providers. The second session, "Using AHRQ Indicators for Hospital-Level Reporting and Payment", will be held on Wednesday, October 27 from 1:00 to 2:30 p.m. (ET) and will look at how the quality measures developed by AHRQ can help consumers make better decisions about their use of health services. The agendas for both sessions listing presenters also include information for on-line registration and more information on the topics to be discussed during the web conferences.

For additional information, contact Paul Dennett, Council vice president, 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.