December 18, 2015
- House, Senate Approve Spending-Tax Extenders Legislation With ‘Cadillac Tax’ Delay
- Lawmakers Release Legislation to Address Investment Advisor Fiduciary Standard
- Council Asks Supreme Court to Consider Case Regarding ‘Normal Retirement Age’
- Executive Branch Agencies Release Regulatory Agendas; IRS Issues Priority Guidance Plan
House, Senate Approve Spending-Tax Extenders Legislation With ‘Cadillac Tax’ Delay
Both chambers of Congress approved spending and tax extenders legislation, including a two-year delay of the 40 percent “Cadillac Tax” on employer-sponsored health coverage, before adjourning for the year on December 18. President Obama has signed the legislation into law.
The measure also would make the payment of the 40 percent tax deductible. While the Council will continue its strong push for full repeal, the change in deductibility would be significant if the tax goes into effect.
The House approved the tax measure (by a vote of 318 to 309) on December 17 and the spending measure (which included the Cadillac Tax delay, by a vote of 316-113) on December 18. The Senate passed a combined measure (by a vote of 65 to 33), also on December 18. We summarized the Cadillac Tax delay provision in the December 16 Benefits Byte and the tax extenders legislation in a separate story.
In a media statement issued after the Senate vote, Council President James Klein called the delay a critical first step toward full repeal. “When people really look at the so-called ‘Cadillac Tax,’ they see what a bad deal it is for employers and employees. Every week more organizations join our diverse coalition – the Alliance to Fight the 40 – to seek repeal of the tax. A two-year delay helps us continue building momentum for repeal,” Klein said.
We thank all the Council members who responded to our Action Alert by contacting your elected representatives. The Council will resume its push for full repeal of the Cadillac Tax when Congress returns in 2016.
For more information on the 40 percent tax and the Council’s repeal efforts, contact Katy Spangler, senior vice president, health policy, at (202) 289-6700.
Lawmakers Release Legislation to Address Investment Advisor Fiduciary Standard
While bipartisan legislators in the U.S. House of Representatives were unable to slow the U.S. Department of Labor’s (DOL) fiduciary definition project as part of year-end spending and tax legislation, they have introduced two measures designed to address concerns with the DOL proposal.
As we have previously reported, the DOL’s proposed regulations would 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 employer plan sponsors.
The Strengthening Access to Valuable Education and Retirement Support (SAVERS) Act (H.R. 4294), introduced by House Ways and Means Oversight Subcommittee Chairman Peter Roskam (R-IL), would address the issue with regard to the Internal Revenue Code. The Affordable Retirement Advice Protection (The ARAP) Act (H.R. 4293), sponsored by House Education and the Workforce Health, Employment, Labor and Pensions Subcommittee Chairman Phil Roe (R-TN), would address the issue with regard to ERISA. The two measures were introduced with the support of Ways and Means Select Revenues Subcommittee Ranking Member Richard Neal (D-MA) and Ways and Means Committee member John Larson (D-CT).Additional cosponsors may be announced soon.
Both measures would require an affirmative vote by Congress before the DOL final rule is permitted to go into effect. If Congress fails to approve the department’s regulatory proposal, a new fiduciary standard would take effect that would:
- Explicitly require advisors to serve in their clients’ best interests.
- Penalize financial professionals who violate the trust of their clients.
- Require advisors to clearly communicate key information to ensure investors are well-informed to make investment choices.
- Ensure that individuals and families saving for retirement have access to advice and investment options to meet their individual needs and circumstances.
The Ways and Means and Education and the Workforce committees are likely to hold hearings on the respective bills in 2016. Passage of the legislation by Congress prior to finalization of the Department of Labor’s proposed regulation would be difficult even with bipartisan support. In addition, President Obama has been vocal about his support of the Department’s proposed regulation which could be finalized as early as next spring.
Nevertheless, the legislation may also function to encourage DOL to be more deliberate and open to changes in its crafting of a final rule. The Council is strenuously pursuing changes to address employer concerns including safe-harbors protecting employers for the actions of employees and service providers as part of final regulations and will continue to do so in the weeks ahead.
For more information on the fiduciary proposal, contact Diann Howland, vice president, legislative affairs, Jan Jacobson, senior counsel, retirement policy, or Lynn Dudley, senior vice president, global retirement and compensation policy at (202) 289-6700.
Council Asks Supreme Court to Consider Case Regarding ‘Normal Retirement Age’
In an amicus (“friend of the court”) brief filed with the U.S. Supreme Court on December 16, the Council (along with the U.S. Chamber of Commerce and the Business Roundtable) urged the high court to take up a case in which a retirement plan sponsor was found to have used an inappropriate definition of “normal retirement age” in its cash balance plan. The Second Circuit Court concluded that a plan’s “normal retirement age” must have “some reasonable relationship” to when the plan’s participants permanently leave the workforce. This raises significant concerns for plan sponsors because it narrows the definition and thereby removes flexibility in plan design.
In the case of Laurent et. al. v. PricewaterhouseCoopers, the plaintiffs accused their employer of improperly calculating the value of lump sum payments, arguing that the retirement plan’s definition of “normal retirement age” as “five years of service” is invalid under ERISA. The brief argues that the definition of “normal retirement age” does not indicate when employees must retire, but only when employees would vest in the plan and how benefits are adjusted, and also indicated the Second Circuit decision was inconsistent with the text of the statute.
The U.S. District Court for the Southern District of New York held that this definition of “normal retirement age” was “invalid because it is expressed as a term of years of service as opposed to a certain, specified age.” Hearing the case on appeal, the Second Circuit Court of Appeals affirmed the district court opinion, ruling that “five years of service is not a ‘normal retirement age’ under [ERISA].”
The Council’s amicus brief refutes the lower court rulings, arguing that ERISA’s plain language states that a “normal retirement age” shall apply as long as it provides a “time” that a plan participant can “attain.” The brief also notes that two courts of appeals (the 4th and 7th circuits) had previously concluded that such a definition was within the discretion accorded to a plan. The brief also stated that Supreme Court “review is needed to restore uniformity to the interpretation of one of ERISA’s central terms.”
The brief goes on to assert that the 2nd circuit’s approach limits the alternatives available to plans in arranging their benefit offerings to meet companies’ needs, thus burdening employers and, by making retirement plans less attractive, undermining ERISA’s goal of providing benefits to employees.”
Executive Branch Agencies Release Regulatory Agendas; IRS Issues Priority Guidance Plan
Key regulatory agencies with jurisdiction over U.S. employee benefits policy have updated their semiannual agendas with topics that are expected to be the subject of formal guidance during the next year.
The remainder of President Obama’s term – from now through 2016 – is likely to be an unusually busy period for the executive branch agencies as they attempt to finalize many of the rules and cement the president’s regulatory policy priorities before they can be revisited and possibly quashed by a new administration. In particular, as described below, these agencies will seek to codify certain outstanding elements of the Affordable Care Act as well as the “fiduciary definition” project to which the president and DOL officials have invested substantial energy despite lingering bipartisan concerns.
These agencies include:
- U.S. Treasury Department (Treasury) and Internal Revenue Service (IRS)
- U.S. Department of Labor (DOL) and Employee Benefit Security Administration (EBSA)
- Health and Human Services Department (HHS) and Centers for Medicare and Medicaid Services (CMS)
- Equal Employment Opportunity Commission (EEOC)
- Pension Benefit Guaranty Corporation (PBGC)
- Securities and Exchange Commission (SEC)
While agencies are not bound by their agendas or the deadlines set, their publication does provide insight regarding the administration's priorities and the amount of activity expected within the next year.
The Council has prepared a list of highlights, identifying the most significant items for employer plan sponsors and indicating how the Council has been actively engaged with administration officials.
For more information on regulatory activity as it applies to retirement matters, please contact Jan Jacobson, senior counsel, retirement policy. For more information on regulatory activity as it applies to executive compensation matters, please contact Lynn Dudley, senior vice president, global retirement and compensation policy. For more information on regulatory activity as it applies to health care matters, please contact Kathryn Wilber, senior counsel, health policy. All can be reached at (202) 289-6700.