American Benefits Council
Benefits Byte


September 8, 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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Council IN THE NEWS: Fighting the 40 Percent Tax on Health Benefits

The Council continues to be a reliable resource for the news media on employee benefits topics, contributing commentary and analysis on news as it arises.

As we reported in the July 28 Benefits Byte, earlier this spring the Council reached out to a diverse group of organizations – business associations, unions, and public sector employers – to establish the Alliance to Fight the 40, seeking Congressional repeal of the 40 percent tax on health benefits (the so-called “Cadillac” tax). This broad-based coalition has demonstrated the shared concern over the tax by a diverse group of stakeholders. The Council, of course, has continued to engage on this issue in conjunction with business-only efforts, such as those organized through the National Coalition on Benefits.

Media coverage of the Alliance’s launch and subsequent activity highlighted the Council’s role as a voice of large employer plan sponsors. Katy Spangler, the Council’s senior vice president, health policy, was quoted in the New York Times story Health Care Tax Faces United Opposition From Labor and Employers, noting “Business and labor are united in their opposition and concerned about the impact of the tax.”

In the US News and World Report story Cadillac Tax: A Portion of Obamacare Both Parties Hate, Council President James Klein explained that “unlike other elements of the law that are more integrally connected to the law and how it functions, you pull this out and nothing else about the law would change. … As partisan as the Affordable Care Act might be in general, on this issue you have broad bipartisan support.”

Klein and Spangler are also quoted in the following stories:

The Council was also mentioned specifically in the following stories:

The Alliance to Fight the 40 is also mentioned prominently in the following stories:

A Senate bill to repeal the tax, which would serve as a companion to the dual measures that have been introduced in the U.S. House of Representatives (The Middle Class Health Care Tax Repeal Act (H.R. 2050), sponsored by Rep. Joe Courtney (D-CT) and the Ax the Tax on Middle Class Americans' Health Plans Act (H.R. 879) (Sponsored by Rep. Frank Guinta (R-NH)) is expected to be introduced very soon. 

For more information on the Council’s public relations activities, please contact Jason Hammersla, senior director, communications, at (202) 289-6700.

DOL Releases Transcripts from Fiduciary Rule Hearings; New Comments Due Sept. 24

As expected, the U.S. Department of Labor has released the transcripts from four days of hearings on the proposed “conflict of interest” rule re-defining who is a retirement plan fiduciary, held August 10-13 in Washington DC:

Also on the DOL’s public hearing page are video excerpts and links to written testimony. With the release of the transcripts, DOL will now accept additional written comments through September 24.

As we reported in the August 13 Benefits Byte, Lynn Dudley, senior vice president, global retirement and compensation policy, testified on August 13. Dudley described how the proposed rule would be at odds with employer efforts to facilitate employee engagement in retirement planning and saving. Highlighting employer concerns that the new conflict of interest and fiduciary definition rules will generate uncertainty, cost and potential liability, she stated that without changes, employers may have to pull back on the educational tools they currently offer to plan participants.

The Council filed a comment letter on July 21 and more information about the regulations is available in the July 22 Benefits Byte. For more information, contact Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.

Council Amicus Brief Challenges Court’s Expansion of Dudenhoeffer Standard

In an amicus (“friend of the court”) brief filed with the Fifth Circuit Court of Appeals on September 2, the Council argued that the court’s recent revival of Whitley v. BP stemmed from a misinterpretation of the U.S. Supreme Court’s recent decision in Fifth Third Bank v. Dudenhoeffer and a misunderstanding of congressional intent.

Whitley v. BP is another in a long line of “stock drop” cases, in which the plaintiffs allege that a defined contribution plan or Employee Stock Ownership Plan (ESOP) sponsor should be held liable for investment losses when the employer’s stock price declines or performs below expectations. The federal district trial court initially dismissed the case based on the then-prevailing “Moench presumption” of prudence on the part of plan administrators.

However, in June 2014, the U.S. Supreme Court handed down a decision in Fifth Bank v. Dudenhoeffer rejecting the presumption that buying or holding employer stock in a retirement plan is prudent. (A Benefits Blueprint summary of the case and an analysis of the Supreme Court’s decision is available on the Council website.) In light of the high court’s ruling, a three-judge panel of the Fifth Circuit Appeals Court vacated the dismissal and sent the case back to the district court for further action.

The district court had allowed the plaintiffs to amend their complaint based on the Dudenhoeffer decision, although BP argued they could not meet the Supreme Court’s new pleading standards. In Dudenhoeffer, the Supreme Court indicated that in order to have a viable stock drop case based on inside information, the plaintiffs must allege that there was action the fiduciary could have taken which would not violate securities laws and would not likely do more harm than good for the plan. The plaintiffs argued that BP could have either discontinued investment in the stock or publicly disclose they were (allegedly) not meeting certain safety standards. The district court allowed BP to appeal the leave-to-amend decision to the Fifth Circuit.

In urging the Fifth Circuit to reverse the district court’s order allowing plaintiffs to amend their complaint (which would result in dismissal of the case), the Council’s amicus brief reiterates several arguments from our February 2014 amicus brief in the Dudenhoeffer case, noting that congressional policy strongly favors the offering of employer stock funds, which provide many public and private benefits, while “stock drop” lawsuits discourage the use of employer stock funds in retirement plans, contrary to congressional intent.

The brief also argues that the Supreme Court’s ruling included a “plausibility” pleading standard to limit such “stock drop” suits, and the plaintiffs in Whitely v. BP failed to satisfy the plausibility requirements because their claims would have required ERISA fiduciaries to make disclosures that a fiduciary could determine would do more harm than good for the plan, and which would not be required under securities laws. In addition, the brief pointed out that BP had hired an independent third party fiduciary who was responsible for the stock fund and had the unilateral authority to stop purchases or liquidate the stock holdings; and disclosure to the third party without public disclosure would have violated securities laws.

For more information, contact Jan Jacobson, senior counsel, retirement policy, or Lynn Dudley, senior vice president, global retirement & 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).