American Benefits Council
Benefits Byte


December 12, 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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Update: House Approves $1.1 Trillion Spending Bill with Benefits Provisions; Senate Up Next

Late on December 11, the U.S. House of Representatives passed the $1.1 trillion government spending package, the Consolidated and Further Continuing Appropriations Act (H.R. 83), by a vote of 219 to 206. A combination of a continuing resolution (CR) and an omnibus spending bill, the so-called “cromnibus” extends 11 of 12 federal agency appropriations measures through the end of the current fiscal year (September 30, 2015), with the Homeland Security Department appropriations measure extended only until February 27, 2015.

As current government funding was set to expire on December 11, Congress also passed a short-term bill to continue government operations while the Senate prepares to vote on the broader funding measure without triggering a government shutdown. The Senate is expected to vote on the package shortly. The White House has announced its support for passage of H.R. 83, commending the bipartisan effort to craft it while at the same time objecting to “the inclusion of ideological and special interest riders” that have been strongly criticized by Democrats as a roll-back of a key feature of the “Dodd-Frank” financial reform legislation and a separate provision allowing large scale private funding for political conventions.

In advance of the House’s consideration of the “cromnibus” and as the House leadership was struggling to garner sufficient votes from both Republicans and Democrats, the Council was asked to provide a letter explaining the importance of the bipartisan agreement on two pension provisions that were included. The Council’s letter urged passage of the legislation and commended the inclusion of the two pension provisions – one related to plan sponsors’ pension obligations in conjunction with normal business transactions (sometimes referred to as the “4062(e)” issue) and the other concerning measures to strengthen multiemployer pension plans. Both provisions are described more fully in the Council’s December 10 Benefits Byte story.

In addition to those two pension matters, the package includes a provision exempting expatriate health plans from certain provisions of the Patient Protection and Affordable Care Act (PPACA). The health care law’s application to expatriate health plans – and to the employer sponsors and employees covered by such plans – has created compliance uncertainty among plan sponsors and caused them to consider obtaining coverage for their ex-pats from non-U.S. insurance carriers. Although some of the compliance uncertainty was addressed in earlier transition guidance issued by thefederal agencies, the guidance was temporary and did not fully address the outstanding concerns.The House had previously considered legislation to address these concerns, but The Expatriate Health Coverage Clarification Act (H.R. 4414)fell short of the votes needed for passage.

Please note, we reported in the December 10 Benefits Byte that the permanent multiemployer pension plan provisions in H.R. 83 would exempt retirees 75 and older from cuts to vested benefits. It should be clarified that retirees between ages 75 and 80 will experience a phased-down limitation on cuts; for example, an individual age 77 would see 60 percent of the “normal” suspension impact. Retirees age 80 and over, as well as disabled retirees, are fully exempt from benefit reductions.

For more information, contact Diann Howland, vice president, legislative affairs, at (202) 289-6700

Outgoing House Chairman Introduces Tax Reform Legislative Text, Incoming Senate Chairman Releases Tax Reform Analysis

On December 11, outgoing U.S. House of Representatives Ways and Means Committee Chairman Dave Camp (R-MI) introduced the Tax Reform Act of 2014 (H.R. 1). As we initially reported in a February 26 Benefits Byte story, Camp released a discussion draft earlier this year in an effort to further the dialogue on comprehensive tax reform. With his imminent retirement, Camp introduced the bill to serve as a possible starting point for tax reform discussions in the next Congress.

An updated section-by-section summary of Rep. Camp’s bill and technical explanation, prepared by the Joint Committee on Taxation (JCT), are now available.

The proposal is the culmination of several years of work for Camp and some members of his committee, which designated 11 tax reform working groups in 2013 to evaluate ideas for comprehensive tax reform. The Council met with and provided recommendations to the Pensions/Retirement Tax Reform Working Group.(Interestingly, there was no comparable working group on the tax provisions related to health policy.)

Also on December 11, U.S. Senate Finance Committee Ranking Member Orrin Hatch (R-UT), who will take over as Chairman of the committee in 2015, released an analysis of possible tax reform options prepared by the committee’s Republican staff. The report, Comprehensive Tax Reform for 2015 and Beyond, outlines several issues likely to come up in the effort to reform the tax code, including:

  • Employer-sponsored health insurance:The report notes that if Congress’ objective is to maintain the employer-sponsored health benefits system “[T]hen maintaining (or capping) the [employee tax] exclusion may be appropriate as termination of the exclusion could weaken the employment-based system of health care.” The report asserts that if the goal is to move the health care system to the individual market or expand public coverage, then ending the exclusion may be a better course of action (p. 101). It is noteworthy that the report contends that capping the exclusion is important to maintaining employer-sponsored health coverage.
  • Employer-sponsored retirement plans: The report refers to arguments that certain employer-based retirement plans, specifically 401(k) plans, 403(b) plans and 457 plans, are very similar other than that they are designed for different employers (taxable employers, non-profit employers, and government employers, respectively) and could all be consolidated into one type of plan. The report argues against this proposal, stating that “transition to a new system, particularly for governmental employers, would be time-consuming and expensive. . . . An employer only needs to know the rules of the type of plan the employer sponsors and does not need to know the rules of the other plans” (p. 113).

The report stresses that one of the fundamental reasons for comprehensive tax reform is that the current U.S. income tax system discourages savings and investment by individuals and thereby hinders long-term growth. The report notes that tax reform should result in a tax system that is more favorable to savings and investment. Interestingly, the report then notes several suggestions to achieve greater savings and investment, including enhancing the consumption tax aspects of our current tax system. The report asserts that “If a consumption tax base or a wage base were adopted, then significant changes could be made to the various retirement plans. Specifically, it notes that if the USA Tax (which is a consumption-tax proposal) were enacted which allows for an unlimited Individual Retirement Account, then “many of the traditional defined contribution plan provisions could be repealed.” It goes on to note that if the individual tax under the Flat Tax (another possible proposal) were adopted “then the various Roth accounts, such as Roth IRAs and designated Roth accounts in 401(k) plans could be eliminated.” (p.114)

Although the report does not specifically recommend any particular approach to tax reform, the aforementioned discussions certainly suggests the direction of some Republican sentiment on the Senate Finance Committee.

For more information, contact Diann Howland, vice president, legislative affairs, at (202) 289-6700

New Council Chart Lists Leading Retirement Coverage Proposals

The Council has devoted substantial time and energyto strong defense of the long-standing tax incentives supporting employer-sponsored retirement savings programs. As we have previously reported, changes to these incentives have been under discussion by lawmakers as part of the conversation on comprehensive tax reform, or as revenue offsets for other costly legislation.

Closely linked to the consideration of tax incentives is the matter of retirement plan coverage. The Bureau of Labor Statistics reports that 65 percent of all private-sector employees have access to a retirement plan, with 48 percent of them participating in a plan. (At companies with 500 employees or more, 80 percent have access and 86 percent of those individuals participate; among all full-time workforces, 74 percent have access and 79 percent of those workers participate.)

Numerous legislative proposals – at the federal and state level – have sought to increase employee access to and participation in retirement plans. A new chart now available on the Council website summarizes the leading coverage proposals to expand retirement plan coverage. For each proposal, the chart lists:

  • A description of the proposal.
  • Whether the proposal is mandatory or voluntary.
  • What type of employers would be affected.
  • The proposed structure of contributions.
  • How contributions would be invested.
  • The tax treatment of contributions.

The chart focuses on solutions proposed at the federal level, but also discusses mandatory (and voluntary) state-sponsored plans that would require (or allow) private sector employers, with a certain number of employees in the state, to automatically enroll into a state-run arrangement any employees not covered by an employer-sponsored retirement plan. Under some of these proposals, the employer’s exposure to fiduciary responsibility remains unclear. These state-level proposals have raised questions concerning the responsibilities they might impose on employer plan sponsors, as well as possible concerns about the erosion of ERISA’s federal framework that preempts state laws. The American Council of Life Insurers (ACLI) has established a website, U.S. Retirement Facts, that includes a detailed section on state-level initiatives.

For more information, contact Diann Howland, vice president, legislative affairs, 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).