December 11, 2015
- Endgame Outlook and Summary: Congress’ Agenda Before Adjournment
- PBGC Roundup: De-Risking, Reportable Events, E-Filing
- DOL Provides Additional Guidance Regarding 2015 Form 5500 Series
Endgame Outlook and Summary: Congress’ Agenda Before Adjournment
The U.S. Congress is approaching the end of the calendar year with a number of “must-pass” items yet to be completed. This essential legislation may be the vehicle for addressing important issues for Council members, including action on the so-called “Cadillac Tax” on high-cost health plans and the U.S. Department of Labor’s (DOL) fiduciary definition proposal.
Before adjourning, Congress must approve an “omnibus” appropriations bill that funds the federal government operations to avert a government “shutdown.” The deadline is now December 16, after lawmakers this week passed a five-day extension. It is possible another temporary extension will be necessary to give lawmakers a few more days to negotiate a final agreement. The hope is that a measure will be approved to fund government operations through the remainder of the current fiscal year, September 30, 2016. However, if disagreements persist, it is possible that a shorter-term bill could be approved that would require Congress to revisit the issue in early 2016.
Congress is also looking to pass a tax “extenders” package, typically used to extend tax provisions that otherwise will expire at the end of the year. Some of these expiring provisions affect employee benefits, including renewal of mass transit benefits and allowing distributions from individual retirement plans for charitable purposes.
On December 10, the Senate approved– by a party-line vote – a budget reconciliation bill (H.R. 3762) that would repeal large portions of the Affordable Care Act (ACA). This vote was conducted under budget rules that allow for approval with a simple majority, rather than a 60-vote “supermajority.” As we reported in the October 23 Benefits Byte, the U.S. House of Representatives has already approved the measure by a party line vote. As has been long understood, President Obama is certain to veto the bill because it contains numerous provisions he opposes, and Republicans do not have sufficient votes to override his expected veto. Among the bill’s provisions are repeal of three elements of the ACA: (1) the individual mandate, (2) the employer “shared responsibility” mandate, and (3) the 40 percent “Cadillac Tax.” The amendment to repeal the “Cadillac Tax” as part of the reconciliation bill garnered 90 votes when it was offered as an amendment in the Senate on December 3. Legislation introduced in the House to repeal the tax is also now cosponsored by more than two-thirds of the members of Congress – 291 Representatives.
The Council, as part of its priority advocacy agenda and as the founding member of the Alliance to Fight the 40, continues to urge repeal of the tax, which applies to the cost of employer-sponsored health coverage exceeding certain limits – $10,200 (self-only coverage) and $27,500 (family coverage) starting in 2018. As we noted in the November 25 Benefits Byte, a two-year delay of the tax is under serious consideration as an element of the tax extenders package. The Council and the Alliance continue to strongly advocate for full repeal but, in the absence of immediate action on repeal, we have expressed support for the negotiations regarding delay as a helpful step toward ultimately achieving full repeal.
The Obama Administration has been firm in its defense of the “Cadillac Tax” and would be certain to veto a stand-alone measure to delay or repeal it. But it seems unlikely that President Obama would veto an omnibus government funding measure or extenders package that includes his other policy priorities, unless delay or repeal was one of many items that he opposed.
Also under consideration as a possible addition to the omnibus government funding bill is a provision to prevent the DOL from finalizing its fiduciary definition project before the end of the fiscal year. Another potential approach would allow DOL to issue rules but provide another short term period for review and comment before they could become final. Yet another proposal would preclude DOL from completing the regulatory project until the Securities and Exchange Commission has addressed the issue. The DOL’s proposed regulations, released in April, broadly expand the definition of “investment advice” by extending fiduciary status to a wider array of advice relationships than is done by the existing rules. The Council has filed numerouscomments and met with executive branch officials on a number of occasions focusing on the impact of the regulations on plan sponsors.
As we reported in the December 10 Benefits Byte, lawmakers supporting the “de-funding” option have repeatedly commented that this step is not intended to avoid making any changes to the definition of fiduciary under ERISA but rather to allow more time to find a consensus approach that addresses concerns about the proposed rule.
As with the “Cadillac Tax,” President Obama has been vocal about vetoing any measures that would slow or stop the fiduciary rule. But these measures would need to include a number of provisions he finds objectionable for him to veto the legislation.
Both the omnibus appropriations bill and tax extenders negotiations remain very fluid and could change over the coming days. The Council will report as new developments arise. For more information, contact Diann Howland, vice president, legislative affairs, at (202) 289-6700.
PBGC Roundup: De-Risking, Reportable Events, E-Filing
For employer plan sponsors of defined benefit plans, there have been a number of developments worth noting with regard to the Pension Benefit Guaranty Corporation (PBGC).
On December 10, PBGC released a study of risk transfers in pension plans, conducted by the agency’s own actuaries using Form 5500 Annual Return/Report data. Risk transfer, or “de-risking,” most commonly refers to a company transferring its ERISA pension plan liabilities by either offering participants a lump sum payout or providing an annuity through an insurer.
The study found that of 3,590 large plans (i.e., plans with over 1,000 participants), 534 (or 15 percent) appeared to have had de-risking activity during the period of 2009 to 2013, to which the PBGC attributes a reduction of 1.1 million participants (of a total of 33.3 million participants), although they view this as a “conservative estimate of the extent of risk transfer activity.” The authors also observed that risk transfers were much more common with respect to terminated vested participants than among retirees and were more prevalent in larger plans.
In a statement issued in conjunction with the study, PBGC acknowledged that employers exiting the system through de-risking may affect PBGC's long-term financial condition, an argument the Council has been emphasizing for a number years as we attempt to reduce the costs and burdens of defined benefit plan sponsorship.
As we reported in the September 10 Benefits Byte, the PBGC recently issued final regulations addressing defined benefit plan “reportable events” under ERISA Section 4043 – events that indicate potential problems and may signal the possible future underfunded termination of a pension plan. Such reportable events, under certain circumstances could justify closer scrutiny of the plan by the PBGC. The changes made by the final rules are applicable to post-event reports for reportable events occurring on or after January 1, 2016, and to advance reports due on or after that date.
In some respects, reporting is reduced under the new rules, but in other respects, reporting is increased. Particularly given the importance of reportable events in the context of loan and other corporate agreements, it is critical that defined benefit plan sponsors have an understanding of the new rules and evaluate how best to achieve compliance. The Council hosted a Benefits Briefing webinar on December 11 to describe the new rules.
On December 9, the PBGC upgraded its e-4010 application and re-named it the PBGC e-filing portal. In addition to preparing and submitting 4010 filings via the e-filing portal, practitioners will have the option of filing information required under PBGC's new ERISA 4043 regulation via the portal. The new e-filing portal also has a multiemployer plan module from which various applications and notices may (or in some cases, must) be submitted tothe PBGC (e.g., applications for financial assistance, annual funding notices, critical and endangered notices.) Practitioners who do not already have an e-4010 account will need to set up an account to be able to use the PBGC e?filing portal.
DOL Provides Additional Guidance Regarding 2015 Form 5500 Series
As we reported in the December 4 Benefits Byte, The U.S. Department of Labor's (DOL) Employee Benefits Security Administration (EBSA), the Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC) have released advance informational copies of the 2015 Form 5500 annual return/report and related instructions.
The 2015 forms include a series of new, additional compliance questions for filers. The agencies have already stated that the new compliance questions will be optional for the 2015 plan year, as recommended by the Council.
The IRS has now released a set of Frequently Asked Questions (FAQs) providing additional guidance on the new compliance questions. For more information, contact Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.