American Benefits Council
Benefits Byte


March 27, 2015

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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House Approves ‘Doc Fix,’ Partially Offset; Senate Expected to Follow Suit After Recess

The House of Representatives approved legislation on March 26 to permanently address the “sustainable growth rate” (or “SGR”), the payment formula used to determine Medicare reimbursements to physicians. The Medicare Access and CHIP Reauthorization Act (H.R. 2) passed by an overwhelming 392 to 37 bipartisan vote.

Before adjourning the Senate for two weeks, Senate Majority Leader Mitch McConnell (R-KY) told Congressional Quarterly that the Senate is likely to pass the measure quickly when it returns after April 13. President Obama has indicated that he will sign the measure into law.

Such legislation, commonly referred to as the “doc fix,” is necessary to stave off a 21 percent cut to Medicare provider payments when the 2014 one-year patch – the last in a series of temporary patches dating back more than a decade – expires after March 31. Without the fix, any federal spending in excess of the SGR would result in automatic reductions in Medicare’s reimbursement rates for providers, although McConnell has said that “the Centers for Medicare and Medicaid Services will be able to handle the delay for up to two weeks.”

Passage of a permanent fix would be a significant achievement, not only because it represents a rare moment of bipartisan agreement in both chambers, but also because it would remove from the legislative calendar one of the annual scrambles for federal revenue raisers – which has, at times, been a vehicle for employee benefits legislation.

The Congressional Budget Office (CBO) estimates that the measure will cost $175.4 billion over ten years, only partially offset by Medicare beneficiary reforms and other spending adjustments.

Unlike most legislation approved by Congress in recent years, H.R. 2 was exempted from the prevailing “pay-as-you-go” rules. There had been concerns that the cost of a permanent fix would compel Congress to seek unrelated revenue-raising provisions, perhaps affecting employer-sponsored plans.

For more information, contact Katy Spangler, senior vice president, health policy, or Diann Howland, vice president, legislative affairs, at (202) 289-6700.

House, Senate Approve Separate 2016 Budget Resolutions

The U.S. Senate and House of Representatives have each approved Fiscal Year 2016 budget resolutions after lengthy debate. Both resolutions were authored by Republican leaders and were approved on mostly party-line votes.

Budget resolutions are non-binding and do not become law, although they do establish a framework for a legislative policy agenda by setting specific spending levels for various executive branch agencies. Like President Obama’s proposal released earlier this year, both the Senate and House resolutions express general views on the health care law and tax reform.

While the budget process serves primarily as a messaging exercise, one important component is that the budget resolutions agreed to by both houses include “reconciliation” instructions, which pave the way for a privileged legislative vehicle that cannot be filibustered in the Senate. Such a reconciliation bill would only require 51 votes for passage in the Senate (which would allow Senate Republicans to pass a measure without any Democratic votes), is limited to 20 hours of debate and is limited in the types of amendments that may be offered.

(The most recent budget resolution, passed by both the House and the Senate in 2009, included a reconciliation instruction. Democrats in the majority used the reconciliation process to achieve final passage of the Patient Protection and Affordable Care Act (PPACA) in 2010. )

The House measure is specific with regard to reconciliation instructions for the repeal of some or all of PPACA, while the Senate simply provides general reconciliation instructions for the two committees of jurisdiction over health care (and retirement plans as well), the Senate Finance Committee and the Senate Health, Education, Labor and Pensions (HELP) Committee.

(During debate in the Senate, lawmakers rejected an amendment (Amendment No. 791) offered by Senator Ron Wyden (D-OR), the ranking Democrat on the Senate Finance Committee, which would have deleted the reconciliation instructions.)

The Senate and the House are expected to go to conference to resolve differences between the different resolutions and send a combined document for both chambers’ approval. The President need not sign a concurrent budget resolution, but if the concurrent resolution includes a reconciliation instruction, that triggers a separate legislative process and that bill must be presented and signed by the President to become law.

Senate Concurrent Budget Resolution

On March 27, the Senate approved S.Con.Res 11 by a vote of 52 to 48 after voting on numerous amendments throughout the week. Two Republicans voted against the measure with all of the Democrats.

As we reported in the March 20 Benefits Byte, S.Con.Res 11 assumes the repeal and replacement of PPACA in favor of “legislation that strengthens the doctor-patient relationship, expands choice, and lowers health care costs.” The resolution calls for reform of the tax code to lower the after-tax costs of investment, savings, and work and reduce costs to businesses and individuals.

The measure also includes a notable amendment added during committee consideration, sponsored by Senators Mark Warner (D-VA) and Kelly Ayotte (R-NH), which would seek to eliminate or modify a number of congressionally mandated reports that have been deemed duplicative or outdated. The Council, in its A 2020 Vision strategic plan, recommended the elimination of “duplicative, contradictory or excessive regulations that impose administrative burdens with respect to plan sponsorship.”

During the course of floor debate during the week of March 23, the Senate approved the following notable amendments with implications for employee benefit plans. Like the budget resolution itself, these amendments are equally non-binding and are designed to express the general policy views:

  • Amendment No. 498, sponsored by Senate Finance Committee Chairman Orrin Hatch (R-UT) would “establish a deficit-neutral reserve fund relating to legislation submitted to Congress by President Obama to protect and strengthen Social Security.”
  • Amendment No. 409, sponsored by Sen. Deb Fischer (R-NE), would “promote equal pay, which may include preventing discrimination on the basis of sex and preventing retaliation against employees for seeking or discussing wage information.”
  • Amendment No. 692, sponsored by Sen. Tim Scott (R-SC), would provide for “transparency in health premium billing.” A similar amendment, No. 1026, offered by Sen. Patty Murray (D-WA), was also approved by the Senate.
  • Amendment No. 798, Sponsored by Sen. Patty Murray (R-WA), would provide for “legislation to allow Americans to earn paid sick time.”
  • Amendment No. 968, sponsored by Wyden, would promote “middle-class tax relief, including extending and expanding refundable tax credits.”

These amendments are largely aspirational in nature and no details for achieving their goals have been provided. Additionally, even if these amendments are retained in the budget resolution passed by both houses, the policies they outline will not become law merely because they are included in the budget resolution. Instead, they would necessitate enactment of specific legislation to achieve the stated aims.

The Senate rejected the following notable amendments:

  • Amendment No. 362, sponsored by Sen. Barbara Mikulski (D-MD), sought to amend the Equal Pay Act of 1963 “to allow for punitive damages, limit the any factor ‘other than sex’ exception, and prohibit retaliation against employees who share salary information.”
  • Amendment No. 471, sponsored by Wyden, would have created “a point of order against legislation that would cut benefits, raise the retirement age, or privatize social security.”
  • Amendment No. 842, sponsored by Sen. Jeff Merkley (D-OR), was intended to improve “consumer financial protection.”
  • Amendment No. 919, sponsored by Sen. Jack Reed (D-RI), sought to “eliminate deductions for corporate compensation” in excess of $1 million.
  • Amendment No. 1094, sponsored by Sen. Elizabeth Warren (D-MA), related to “expanding Social Security.”
  • Amendment No. 323, sponsored by the Senate Budget Committee’s ranking Democrat Bernie Sanders (D-VT), which sought “to create millions of middle class jobs by investing in our nation's infrastructure paid for by raising revenue through closing loopholes in the corporate and international tax system.” As noted in the March 6 Benefits Byte, the Democratic staff of the Senate Finance Committee recently issued a report characterizing certain executive compensation practices as “loopholes,” and a recent White House fact sheet on the president's tax proposals said that “tax loopholes have allowed some high-income Americans to accumulate tens of millions of dollars in tax-preferred accounts that were intended to help workers save for a secure retirement, not to provide tax shelters for the wealthiest few.”

A great many more amendments were introduced but did not receive floor consideration during debate, addressing such matters as small business retirement plans (No. 425), the U.S. Department of Labor’s fiduciary definition project (No. 610), employee wellness programs (Nos. 502 and 961), automatic payroll deduction IRAs (No. 634), multiemployer pension plans (No. 980), PPACA taxes (No. 826) and insurer fees (No. 355) and the 40-hour work week under PPACA (No. 442).

House Concurrent Budget Resolution

Meanwhile, the House of Representatives passed its budget resolution, H.Con.Res 27, by a mostly party-line vote of 228 to 199 on March 25.

As we reported in the March 17 Benefits Byte, the Republicans described their budget proposal in a summary document, A Balanced Budget for A Stronger America. The primary difference between the version of the bill reported out of the House Budget Committee and the version approved by the full House is the addition of $96 billion set aside for defense spending.

Unlike the Senate measure, the House resolution includes “policy statements” on a variety of topics. These policy statements explicitly advocate for full repeal of PPACA and call for “comprehensive tax reform that would include lower rates for individuals and families as well as large corporations and small businesses” while “broadening the tax base by closing special interest loopholes that distort economic activity.” The resolution does not discuss employer-sponsored retirement plan policy, though it does call for “a bipartisan path forward in addressing the long-term structural problems within Social Security.”

During debate of the measure, the House rejected a series of substitute budget proposals offered by the Democratic Caucus, the Congressional Black Caucus, the Congressional Progressive Caucus and the conservative Republican Study Committee.

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

Council Amicus Brief Disputes District Court’s Ruling that Retirement Plan is ‘Affiliate’ of Sponsoring Company

In an amicus (“friend of the court”) brief filed with the U.S. Court of Appeals for the Second Circuit on March 26, the Council argues that a lower court erred when it denied the claims of American International Group, Inc’s (AIG) qualified retirement plans (which held company stock during the requisite class period) for an award from the settlement of In re American International Group, Inc. Securities Litigation, in which the company was accused of violating securities laws by misleading shareholders about its financial condition prior to and during the 2008 market turmoil.

In the lawsuit, AIG shareholders claimed the company’s actions caused a steep drop in its own stock price (commonly known as a “stock drop” incident). When AIG and the shareholders entered into a settlement agreement, the AIG qualified retirement plans and their participants who had invested in company stock sought a share of the settlement. In its ruling against the AIG plans and the plans’ participants, the District Court for the Southern District of New York indicated that a company’s retirement plans constitute “affiliates” of that company under securities law because the company possesses “control” over them through its power to appoint fiduciaries or terminate the plans. Therefore, the AIG retirement plans and the plans’ participants are not entitled to a share of the settlement.

The Council believes that the district court’s decision would have “unexpected and concerning implications for the relationship between plan fiduciaries and the employers that establish and maintain retirement plans.”  Specifically, the Council’s brief argues that:

  • The district court’s test for determining “control” would, taken to its logical conclusion, dictate that all employees of AIG who purchased or otherwise acquired securities be excluded from the settlement, not only those that participated in the plans (although the ruling only addressed company stock purchased through the AIG plans).
  • Federal securities law dictates that the district court account for ERISA in determining whether the plans are affiliates of AIG.

For more information on this issue or the Council’s amicus brief program for retirement matters, contact Jan Jacobson, senior counsel, retirement policy. For more information on the Council’s amicus brief program with regard to health matters, contact Kathryn Wilber, senior counsel, health policy. Both can 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.

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).