American Benefits Council
Benefits Byte


October 1, 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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Education and the Workforce Committee Votes to Repeal ACA Automatic Enrollment Provision

In a 22-15 party-line vote on September 30, the House of Representatives Education and the Workforce Committee approved reconciliation instructions repealing the automatic enrollment provision of the Affordable Care Act (ACA).

Section 1511 of ACA mandates automatically enrolling new full-time employees into an employer’s health plan unless the employee proactively declines or selects alternative coverage. Section 1511 applies to employers with 200 or more full-time workers. An updated estimate of this provision’s budget effects is expected to be released soon.

The Council has consistently opposed this provision of ACA and recommended its repeal in a package of suggested ACA reforms released earlier this year. We have argued that the requirement is unnecessary since virtually everyone is already legally required to have coverage under the ACA. We also note that automatic enrollment could, ironically, have adverse consequences on employees' eligibility for premium tax credits and cost-sharing reductions.

Opening discussion of the legislation, Education and the Workforce Chairman John Kline (R-MN) said that repeal of the automatic enrollment provision would relieve employers and plan participants of a requirement “that is so convoluted and confusing that the Department of Labor (DOL) still hasn’t figured out how to implement it.”

Some Republican members, such as Representative Elise Stefanik (R-NY), characterized the change as a “technical drafting fix” to remove a source of forced duplicative coverage rather than a wholesale repeal attempt.

Rep. Steve Russell (R-OK) noted that the amendment does not deny any workers access to employer-sponsored coverage as offered and will additionally alleviate administrative issues with determining who may already be included in another health care program.

Rep. Robert Scott (D-VA), the committee’s ranking Democrat, countered that the vote was simply part of a larger Republican plan to repeal the health care law by “chipping away at it.“ He suggested that a better option to removing the mandate would be for the DOL to release regulations that avoid the aforementioned confusion of an employee being required to acquire  a second form of coverage if already participating through another plan such as that of their parents or veterans’ benefits.

A brief interlude of bipartisan agreement was shared by several committee members, including Rep. Glenn Thompson (R-PA) and Rep. Joe Courtney (D-CT), who expressed unease with repealing the automatic enrollment provision as part of the budget reconciliation process instead of considering it as a free-standing bill. Thompson described the auto-enrollment provision’s removal as a needed “refinement”.  Courtney agreed that it would be an improving “surgical” modification to which he was not opposed as an individual measure. However, because it was connected to the budget reconciliation legislation, Courtney and several other Democrats voiced their vote against repeal.

Courtney is the lead sponsor of the The Middle Class Health Care Tax Repeal Act (H.R. 2050), a bipartisan bill to repeal the ACA’s 40 percent “Cadillac Tax” and a measure strongly supported by the Council. As we reported in the September 29 Benefits Byte, the House Ways and Means Committee approved a package of reconciliation instructions repealing certain ACA tax provisions, including the 40 percent tax.

Now that the Education and the Workforce Committee has approved its reconciliation instructions, the House Budget Committee will combine it with the Ways and Means instructions approved on September 29 and the Energy and Commerce Committee instructions also approved on September 30. (The Energy and Commerce Committee instructions did not include provisions directly related to employer-sponsored plans.) After the Budget Committee reviews and approves the combined measure as expected, House leadership could bring the bill to the floor as early as this month.

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

GAO Examines State-Run Private-Sector Retirement Plans

The U.S. Government Accountability Office (GAO) recommended that Congress consider providing states with additional flexibility under ERISA to enact private-sector retirement savings initiatives in a recently released report. The U.S. Department of Labor has already indicated that it will issue a proposed rule on state programs by the end of 2015.

The report, Retirement Security: Federal Action Could Help State Efforts to Expand Private Sector Coverage, had been requested by Senator Patty Murray, who is the ranking Democrat on the Senate Committee on Health, Education, Labor and Pensions. GAO’s report examined:

  • recent estimates of retirement coverage, including access and participation, as well as characteristics of workers who lack coverage.
  • strategies used by states and other countries to expand coverage.
  • challenges states could face given existing federal law and regulations.

GAO calculated that 54 percent of workers currently participate in workplace retirement plans, with the majority of those workers participating in the plan. However, 84 percent of those not participating lacked access because they either worked for employers that did not offer programs or were not eligible for the programs that were offered. While these coverage numbers are in line with other recent estimates, the Council has noted in the past that simple coverage statistics are potentially misleading because they measure a snapshot point in time figure, as opposed to recognizing that many workers are covered by a plan for large portions of their working careers (see Appendix B of the Council’s April 2015 written submission to the Senate Finance Committee.)

GAO suggested that existing and ongoing state initiatives to expand coverage – such as those in California and Illinois – do so by “encouraging or requiring workplace access, automatic enrollment, financial incentives, and program simplification.”

While the Council heartily endorses the need to expand retirement plan coverage, we have raised concerns about the potential of state plans to erode ERISA’s preemption standard, disrupting multi-state employer plans that rely upon a strong federal framework. The Council’s public policy strategic plan, A 2020 Vision, underscores our long-standing policy on preserving ERISA preemption, noting that “uniform plan administration is essential for multi-state employers to sponsor employee benefits, since variations in state laws create substantial burdens and costs.”

Earlier this year, the Council held a Benefits Briefing webinar and issued a Benefits Blueprint summary outlining the latest state retirement plan initiatives. 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. 

Another House Committee Examines DOL Fiduciary Rule

Congressional scrutiny of the U.S. Department of Labor’s (DOL) proposed “conflict of interest” rule re-defining who is a retirement plan fiduciary continued on September 30 with a hearing before the House of Representatives Ways and Means Committee’s Oversight Subcommittee (video here). The U.S. House of Representatives Committee on Financial Services subcommittees on Oversight and Investigations and Capital Markets and Government Sponsored Enterprises held a similar joint hearing on September 10 (see the September 10 Benefits Byte).

As we have previously reported, The DOL’s Employee Benefits Security Administration (EBSA) issued proposed regulations in April  that broadly update the definition of “investment advice” by extending fiduciary status to a wider array of advice relationships than is done by the existing rules. (See the April 14 Benefits Byte for a brief summary of the proposal.) The Council has filed numerous comments with EBSA:

  • On July 21, we articulated our concerns that the new rules will generate uncertainty, cost and potential liability and force employers to pull back on the educational tools they currently offer to plan participants.
  • On July 10, we requested clarification of the proposed fiduciary definition as it applies to health and welfare plans.
  • On September 24, we provided supplemental comments specifically describing the potential effect of the rule on casual conversations among employees, the deployment of call centers and investment education.

Subcommittee chairman Peter Roskam (R-IL) opened the hearing by saying that the proposed rule, if finalized, would “make it extremely difficult for people to access financial advice without having to pay costly fees.” He also argued that the economic study on which the DOL is relying is fundamentally flawed.

Roskam added, "One grave concern I have heard over and over again from my constituents is that the Administration’s objective is to force Americans out of private sector IRAs and 401(k)s, which are generally working very well under current law, and into retirement controlled by the government.”

The committee heard testimony from the following witnesses, who were – with one exception – generally very critical of the proposal:

  • Bradford Campbell, counsel at Drinker Biddle & Reath LLP and member of the Council’s Policy Board of Directors, told the panel that the DOL proposal “is fundamentally flawed, exceeds the Department’s regulatory authority, and must be significantly revised.” He also noted that the DOL’s efforts to promote state-run private-sector retirement plans require more extensive congressional oversight.
  • Paul Schott Stevens, president and CEO of the Investment Company Institute (a Council Board member organization), agreed that the proposal is “deeply flawed,” saying that it would increase costs and limit the ability of investors to receive guidance. He disputed the DOL’s argument that commission-based and broker-sold arrangements are inherently inferior.
  • Judy VanArsdale, a financial advisor with enRich Private Wealth Management, expressed support for the “best interest” standard in principle, but noted that compliance with the proposal’s “Best Interest Contract” exemption would be challenging operationally and expose advisors like her  to new liabilities.
  • Kenneth Specht, financial services Professional, Agent, New York Life Insurance Company, said that the proposal, as written, “could hurt middle class consumers – like those I serve in Wisconsin – by cutting off access to affordable advice and a secure retirement.” He noted specifically that the rule seems to equate “best interest” with “lowest cost,” even when the cheapest products may not be in a client's best interest.
  • Patricia Owen, president of FACES DaySpa (representing the U.S. Chamber of Commerce), highlighted elements of the proposal that would have a negative impact on small businesses and their employees.
  • Damon Silvers, director of policy and special counsel at AFL-CIO, defended the proposal and supported DOL’s assertion that “conflicts of interest” cost retirement savers $17 billion a year. He suggested that the “flow from Americans’ retirement money to financial institutions and advisers as a result of conflicted advice is … a direct transfer from the American public to Wall Street.”

All of the witnesses, including those critical of the DOL proposal, expressed support for the fiduciary “best interest” standard and a reexamination of who qualifies as a fiduciary.

Discussion generally broke down along party lines, with most Republicans criticizing the proposal’s shortcomings and most Democrats emphasizing the need for non-conflicted investment advice. However, Rep. Richard Neal (D-MA) identified a number of areas of possible agreement and asked Roskam if he would be willing to pursue a bipartisan "legislative solution." Roskam agreed and said he would "commit to working wholheartedly with [Neal] in good faith." This is the first public discussion of a bipartisan measure to address these issues.

Also notably, during the question-and-answer period, Rep. Kristy Noem (R-SD) said her “biggest concern” was that “it specifically is targeted at small businesses …while creating a carve-out for large employers, giving them special treatment, and that’s exactly the opposite thing that should be happening.”

Regarding the perceived endorsement of "robo-advisers" in the DOL's proposal, Stevens noted the irony that DOL appears to be embracing technology in this area but has been reluctant to permit electronic disclosures to participants because of a perceived "technological divide" among American workers.

The deadline for formal comments to DOL on the proposal has passed. There is no timeline for finalization of the proposal.

For more information, contact Jan Jacobson, senior counsel, retirement policy, Diann Howland, vice president, legislative affairs, 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).