American Benefits Council
Benefits Byte


September 10, 2014

The Benefits Byte is the American Benefits Council’s regular e-mail and online newsletter for members only, providing timely reports on legislative, regulatory and judicial developments, along with updates on the Council’s activities in support of employer-sponsored benefit plans.

The Benefits Byte is published by the American Benefits Council, based on staff reports and edited by Jason Hammersla, Council director of communications. Contact information for Council staff related to specific topics can be found at the end of each story.

Click here to read past issues on the Benefits Byte Archive page.

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Full Senate to Vote on Legislation Clarifying Defined Benefit Plan 'Shutdown' Procedures

The U.S. Senate is expected to vote as early this week on a measure to clarify the definition of “substantial cessation of operations” of a defined benefit pension plan sponsor under ERISA Section 4062(e). The legislation, H.R. 2511, was approved by the Senate Health, Education, Labor and Pensions (HELP) Committee in a closed-door session on July 23. Final text of the committee report is now available.

Under current law, if an employer with a pension plan shuts down operations at a facility – and, as a result of that shutdown, more than 20 percent of the workers who are plan participants are separated from employment – the employer is required to provide the PBGC with short-term financial guarantees in the form of a bond or escrow amount based on the plan's unfunded termination liability. In the past few years, PBGC has enforced this provision of ERISA in a very expansive manner. This has given rise to significant compliance challenges and large unexpected liabilities for many companies that have engaged in normal business transactions (such as the sale of a very small business unit or the consolidation of small operations at different facilities).

The Council is extremely concerned that PBGC's enforcement represents a misinterpretation of the ERISA statute. We have met numerous times with PBGC officials on the matter and submitted comments, including a recent letter to the PBGC Board of Directors. We worked closely with the sponsors of S. 2511, Senate Health, Education, Labor and Pensions (HELP) Committee Chairman Tom Harkin (D-IA) and ranking Republican member Lamar Alexander (R-TN), during the drafting and refinement of the measure.

Very generally, S. 2511 would:

  • Ensure that there is no 4062(e) event unless there is a substantial shutdown of operations at a facility relative to the size of the entire employer.
  • Ensure (subject to certain exceptions) that there is no 4062(e) event unless employees lose their jobs, as opposed to going to work for another employer.
  • Significantly reduce the scope of an employer’s liability if there is a 4062(e) event.

The legislation would apply to both prior transactions and future transactions. It is intended to return enforcement to its original purpose, which was to provide a tool for PBGC when a true cessation of operation is signaling a spiraling down of the company’s financial condition.

We continue to be in close contact with HELP Committee staff to resolve the few outstanding issues with the bill, such as the rules regarding timing of the election, contributions of the alternative liability amount and clarification that all operations at a facility need to cease to trigger 4062(e).

A summary memorandum, prepared by Davis & Harman LLP, is available on the Council website, providing a more detailed description of the issue and the key provisions of S. 2511 as introduced. The Council hosted a Benefits Briefing webinar on April 24 to discuss in greater detail the challenges with enforcement of current law. (Click here for a digital playback of the session.)

The HELP Committee’s noncontroversial, bipartisan approval of S. 2511, and its ongoing dialogue with the U.S. House of Representatives Education and Workforce Committee, suggests that the measure could receive positive consideration in both houses of Congress. For more information, contact Lynn Dudley, senior vice president, global retirement & compensation, or Diann Howland, vice president, legislative affairs, at (202) 289-6700.

House Approves Measure Allowing Insurers to Continue Offering Existing Plans

The U.S. House of Representatives approved a measure on September 11, by a vote of 247 to 167, effectively allowing health issuers to continue offering existing plans even if those plans do not meet certain minimum standards under the Patient Protection and Affordable Care Act (PPACA).

The Employee Health Care Protection Act (H.R. 3522) would allow health insurance issuers to continue offering group coverage that was in effect during 2013, including plans that do not comply with the PPACA requirements. Groups would be allowed to enroll in such plans even if they had not previously been covered by them, and people enrolled in those plans would be considered to be in compliance with the individual mandate imposed by PPACA. (Insurers would not be allowed to offer such coverage through health insurance exchanges.)

The House Energy and Commerce Committee approved the measure on a mostly party-line vote on July 30, as we reported in a July 31 Benefits Byte story.

H.R. 3522 is unlikely to be considered this year in the Senate, where Democrats hold the majority, and President Obama has issued a veto threat if the bill is enacted and sent for his signature. The measure would need to be re-proposed in 2015 for future consideration. For more information, contact Katy Spangler, senior vice president, health policy, at 202-289-6700.

House Subcommittee Holds Hearing on Status of PPACA Implementation

In a September 10 hearing, the U.S. House of Representatives Ways and Means Subcommittee on Health heard testimony from Obama Administration officials on the continued implementation of the Patient Protection and Affordable Care Act (PPACA), including two major provisions of PPACA taking effect this year, the premium tax credit and the individual “shared responsibility” mandate. The upcoming 2015 tax filing season will be the first opportunity for individual reporting of the required health coverage.

PPACA provides for an income-based, advanceable, refundable premium tax credit for individuals who purchase health coverage through insurance exchanges. These tax credits, provided for coverage beginning on January 1, 2014, are determined by an individual’s income and their eligibility for affordable employer-sponsored insurance. Verification of the availability of employer-sponsored coverage is based on employer reporting, which was delayed for 2014 under previously issued Notice 2013-45 transition relief and will not be effective until 2015 (first reporting is due in early 2016). As stated in prior regulatory guidance, the IRS is encouraging voluntary reporting for coverage in 2014.

The September 10 hearing focused on how the Internal Revenue Service (IRS) is changing tax filing requirements in order to verify required health coverage for individuals, as well as the process for correcting inaccurate tax credits paid to individuals.

In his opening statement, Chairman Kevin Brady (R-TX) stated his concern about the individual mandate being enforced for 2014 despite the delay of the employer mandate and that improper subsidy amounts are being paid out by the government.

The subcommittee heard from the following witnesses:

  • John Koskinen, commissioner for the IRS, described the agency’s approach to the premium tax credit and the individual shared responsibility provision. He stated that for the majority of taxpayers who receive coverage through their employer, their tax returns will only include an additional box to check verifying that they have coverage, but for taxpayers who receive coverage through an insurance exchange and receive a subsidy, they will need to complete an additional calculation to verify they are receiving the correct tax credit amount. He also stated the concerns of the IRS over the anticipated increase in customer service calls during the 2015 tax filing season, which may be difficult for the agency to handle because of ongoing budget constraints (as well as the possibility of an additional increase in call volume related to the impact of additional tax legislation that may be passed later this year).
  • Andy Slavitt, principal deputy administrator for the Centers for Medicare & Medicaid Services (CMS), testified that CMS continues to build on the lessons learned from the first open enrollment period by bringing more value to consumers and adding critical functionality to operate the insurance exchanges. He stated that PPACA implementation “will take sustained effort, persistence, and focus from all stakeholders.”

In the question-and-answer period, members of the subcommittee asked about the processes in place for reimbursement of incorrect subsidies. Koskinen replied that, although challenging, the IRS will be able to identify instances of incorrect tax credits.

In response to questions about what individuals receiving coverage through an exchange should do in the case of an income change during the year, Koskinen and Slavitt replied that individuals should report their new income as soon as possible on the PPACA website to update the tax credit amount for which they qualify. Koskinen noted that if individuals do not report an income change until filing their taxes, there is no penalty and the difference in tax credits will be applied at that point, similar to tax returns and refunds.

Representative Earl Blumenauer (D-OR), expressing his frustration with repeated Republican attempts to unwind PPACA, suggested that the subcommittee hold hearings on health issues that would have a chance of obtaining bipartisan support.

For more information, contact Katy Spangler, senior vice president, health policy, at 202-289-6700.

IRS to Host Defined Benefit Plan Update Webinar

The Internal Revenue Service (IRS) will host a webinar for employers on September 18 at 2 p.m. (Eastern Time) to provide an overview of recent legislation concerning defined benefit plans, as well as current and pending guidance from the U.S. Treasury Department and the Internal Revenue Service (IRS).

The webinar also will discuss current developments regarding determination letter processing and Employee Plans Compliance Resolution System (EPCRS) cases. In addition, speakers will address common issues that come up during examination.

The September 18 IRS webinar will cover:

  • Recent legislation
  • An overview of recent and pending IRS/Treasury guidance
  • Current developments in determination letter processing and EPCRS cases
  • Common issues arising in examinations
  • Responses to selected questions submitted in advance of the presentation

Speakers for the webcast will include Carol Zimmerman, an actuary, and Lawrence J. Heverle, Jr., a field actuary, both in the IRS office of Employee Plans.

Interested individuals can register for the IRS webcast here. Please note, this is not a Council webinar. For more information, contact Jan Jacobson, senior counsel, retirement policy, or Lynn Dudley, senior vice president, global retirement and compensation 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.

Notice: the information contained herein is general in nature. It is not, and should not be construed as, accounting, consulting, legal or tax advice or opinion provided by the American Benefits Council or any of its employees. As required by the IRS, we inform you that any information contained herein was not intended or written to be used or referred to, and cannot be used or referred to (i) for the purpose of avoiding penalties under the Internal Revenue Code, or (ii) in promoting, marketing or recommending to another party any transaction or matter addressed herein (and any attachment).