October 28, 2015
- Revised Budget Agreement Approved by House with Additional PBGC Premium Increases, Extended Pension Relief
- Council Asks Treasury, IRS to Withdraw Lump Sum Guidance
- Council Files Amicus Brief in Fifth Circuit Regarding Texas ‘Prompt Payer’ Statute
- House Passes Measure to Delay DOL Fiduciary Rule
Revised Budget Agreement Approved by House with Additional PBGC Premium Increases, Extended Pension Relief
The U.S. House of Representatives has approved a two-year budget agreement as described in the October 27 Benefits Byte. The Bipartisan Budget Act of 2015 (H.R. 1314) increases federal spending caps and raise the debt ceiling through March 2017.
Included in the package is a series of revenue-raising provisions, most notably an increase in the premiums paid by single-employer defined benefit plans to the Pension Benefit Guaranty Corporation (PBGC). Since the discussion draft was first released on October 27, the measure’s authors needed to find additional revenue and have boosted the increases even further.
In addition, the amended bill also further expanded the defined benefit plan funding stabilization by one year.
The rest of the provisions are as they were described in the October 27 Benefits Byte.
The Council issued an Action Alert to all members on October 28, urging plan sponsors to contact their elected representatives to express their disappointment with the inclusion of PBGC premium increases. It is important to go “on record” so that we can more successfully try to stop this practice.
For more information on the budget deal, contact Diann Howland, vice president, legislative affairs. For more information on defined benefit plan matters, contact Lynn Dudley, senior vice president, global retirement and compensation policy. For more information on ACA automatic enrollment and other health policy issues, contact Katy Spangler, senior vice president, health policy. All can be reached at (202) 289-6700.
Council Asks Treasury, IRS to Withdraw Lump Sum Guidance
In a written response to guidance issued earlier this year, the Council urged the U.S. Treasury Department and Internal Revenue Service (IRS) to reconsider its prohibition on certain pension plan lump sum payments.
In IRS Notice 2015-49, the agency said it plans to amend the required minimum distribution regulations under Internal Revenue Code Section 401(a)(9) to prohibit lump sum payments or any other accelerated form of distribution of qualified benefit plans to replace any joint and survivor, single life or other annuity currently being paid. Although the regulations have not yet been proposed and no comment period has been opened, the Notice indicated the guidance would be effective on the date of the Notice (see the July 9 Benefits Byte for more details).
This action was intended to preclude a method of pension fund de-risking in which plan sponsors partially or fully discharge their ERISA plan liabilities through a lump sum payment to a participant or beneficiary currently receiving an annuity. Pension de-risking and participant disclosures for such activities are also currently being examined by the ERISA Advisory Council (EAC). The EAC, which has dubbed such activities “pension risk transfers,” heard testimony on the subject in a recent series of hearings, including testimony provided on the Council's behalf.
The Council takes issue with the procedural approach taken by Treasury and the IRS, in which the outcome of the final regulations appears to be a foregone conclusion, public comments notwithstanding. The Council also disagrees with the substantive legal analysis underlying the Notice. Our letter argues that Notice 2015-49 is an inappropriate use of Treasury’s authority to issue retroactive regulations and that the process should always anticipate that there could be a disagreement with the legal analysis upon which the guidance is based.
In addition, the notice effectively prevents individuals from being given a choice of distribution method. “Depriving retirees of the right to make their own choices is not only inappropriate, but can also have significantly adverse financial effects on retirees in many cases,” the letter said.
If the regulations are issued as planned, the Council is urging Treasury and IRS to provide deference to the regulatory process prescribed by the Administrative Procedure Act by deferring the effective date so that final decisions are made after public comment, not before.
The Council's Board of Directors is sufficiently concerned about process issues -- citing this guidance as one significant example -- that it has established a task force to examine ways the Council could more effectively help agencies implement processes that ensure appropriate input from the regulated community.
Council Files Amicus Brief in Fifth Circuit Regarding Texas ‘Prompt Payer’ Statute
The Council has submitted an amicus (“friend of the court”) brief in the Fifth Circuit Court of Appeals in Health Care Services Corp. v. Methodist Hospitals of Dallas, a case involving whether Texas “prompt pay” requirements apply to self-insured employers, and if so, whether they are preempted under ERISA. This case has implications for the ability of multi-state self-funded health plans to uniformly administer their plans without having to conform to widely disparate state claims processing requirements.
Prompt pay laws or regulations establish time periods for payment or denial of claims and penalties for noncompliance. In a January 28, 2015, ruling, the United States District Court for the Northern District of Texas concluded that the prompt pay provisions of Texas Insurance Code Chapter 1301 were inapplicable to self-funded plans and declined to address the ERISA preemption issue. Methodist Hospital appealed the decision to the 5th Circuit, arguing that the law should be read to apply to insurers when acting as third-party administrators for self-funded plans.
The Council’s brief, which was filed jointly with other employer and insurer organizations, argued that the district court correctly concluded that the prompt pay provisions of Chapter 1301 are unambiguous and that, by their plain language, they do not cover self-funded employee benefit plans or those who administer such plans. The brief further argued that even if the Texas prompt pay provisions encompassed self-funded plans, they would nonetheless be preempted by ERISA.
As discussed in the amicus brief, the concern is not just claim administration in Texas, but claim administration nationwide. If Methodist Hospital’s position is adopted, courts might construe prompt-pay laws in other states as applying to self-funded plans, or state legislatures could be emboldened to amend their state prompt-pay laws to include such plans. The brief included a list of state insurance prompt pay laws to illustrate the widely divergent regulation that self-funded plans could become subject to in the absence of ERISA preemption. The result would be significantly greater administrative expense for plans and possibly reduced benefits for plan members.
For more information on this case or the Council’s amicus brief program, contact Kathryn Wilber, senior counsel, health policy, at (202) 289-6700.
House Passes Measure to Delay DOL Fiduciary Rule
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.)
H.R. 1090, sponsored by House Financial Services Committee member Ann Wagner (R-MO), would require the DOL to delay publishing a final rule until 60 days after the Securities and Exchange Commission (SEC) finalizes its rule relating to the standards of conduct applicable to brokers and dealers. The SEC requested information in a March 2013 notice but has not issued yet issued rules.
For more information, contact Diann Howland, vice president, legislative affairs, at (202) 289-6700.