January 21, 2014
Regulatory & Legislative Outlook: What to Watch For in Early 2014
With Congress having returned from the holiday recess and the regulatory agenciescontinuing their work, early 2014 figures to be an important time for eagerly awaited developments as well as possible surprises affecting the world of employee benefits.
The key regulatory agencies with jurisdiction over employee benefit plans – namely, the U.S. departments of Treasury, Labor (DOL) and Health and Human Services (HHS), among others – issued their semi-annual regulatory agendas in late November, giving some indication of what is to come for the first half of 2014. The Council reported on these agendas in detail in the December 11 Benefits Byte. Most importantly, in early 2014:
- The Treasury Department and the Internal Revenue Service (IRS) is expected to issue:
- final regulations on the shared responsibility for employers regarding health coverage under Internal Revenue Code Section 4980H, as established by the Patient Protection and Affordable Care Act (PPACA) (The Council filed a comment letter in March and testified at a public hearing in April on the proposed regulations) and
- final regulations on the reporting and notice requirements under Code Section 6056, under which applicable large employers must file certain information with the IRS on coverage under an eligible employer-sponsored health plan and furnish statements to individuals, along with rules for reporting of MEC under 6055 (The Council filed a comment letter and testified at a public hearing in November on the proposed 6055 and 6056 regulations).
- Rulemaking implementing the health plan automatic enrollment requirements for large employersunder Section 18A of the Fair Labor Standards Act (FLSA) was listed as a “long-term action” in the Fall 2013 semi-annual regulatory agenda, with “next action to be determined” by a date “to be determined,” suggesting this is a longer-term regulatory project for DOL. According to prior guidance, until final regulations under FLSA Section 18A are issued and become applicable, employers are not required to comply with Section 18A.
- With regard to retirement policy, two highly anticipated rules are expected to be released by DOL and the Employee Benefits Security Administration (EBSA) later in the year (officially slated for August):
- Proposed regulations addressing the definition of “fiduciary” (now officially known as the Conflict of interest rule-investment advicerule) (The Council has been extensively engaged for quite some time in dialogue with DOL and EBSA officialson this matter, including written comments on the proposed rules in February 2011) and
- Proposed regulations on pension benefit statements, which are expected to provide detailed guidance on providing benefit statements (as required under the Pension Protection Act) as well as address whether and how the individual benefit statement should present a participant’s accrued benefits in a defined contribution plan as a lifetime income stream of payments in addition to an individual account balance (The Council filed written comments, most recently in August 2013, on the Advance Notice of Proposed Rulemaking (ANPRM)).
- In the nearer term, EBSA is expected to issue proposed regulations establishinga Guide or similar requirement for section 408(b)(2) disclosures (the Council discussed these requirements in August 2010 written comments on the interim final regulations.)
- President Obama is expected to issue his Fiscal Year 2015 budget proposal in February. While the 2013 budget agreement has set the budget for the next two fiscal years, the president’s budget still establishes the administration’s policy priorities and could affect how the regulatory agencies’ budgets are spent.
Political and Legislative Matters
As things stand today, despite the political price congressional Republicans incurred as a result of the government shutdown last October, they are expected to do well in the November elections. The party that does not occupy the White House typically picks up both Senate and House seats during the mid-term elections, especially during a president’s second term. In the Senate, Democrats have to defend more seats than the Republicans this year, providing Republicans with more opportunities than the Democrats to gain seats. Providing a further challenge for Democrats is that several politically moderate members who represent “swing districts” have announced plans to retire at the end of the current Congress, making it more difficult to keep those House seats in Democratic hands. Against that backdrop, Congressional Republicans may be reluctant to make any deals with President Obama and congressional Democrats this year because if they believe they will be in a better position (including possible control of the Senate) in 2015. Conversely, the Democrats – especially President Obama – may be strongly inclined to strike deals, if possible, on the theory that they are currently better positioned to achieve something acceptable than after the elections.
Notwithstanding political maneuvering, last week Congress passed – and President Obama signed into law – a $1.012 trillion Omnibus Appropriations measure to fund federal government activities through the remainder of Fiscal Year 2014, which concludes September 30, 2014. Although this measure essentially carries out the terms of the late-2013 bipartisan budget agreement, there had been some concern that disagreements could arise that would have resulted in another government shut-down. Despite that important agreement and a general slowdown in legislative activity, there are still a number of important deadlines and policy priorities that may spur action on measures affecting employer-sponsored benefit plans. To the extent these measures have significant federal revenue costs, lawmakers may seek to offset that spending by adjusting or eliminating the tax incentives for certain employee benefits.
- As we reported in the December 19, 2013, Benefits Byte, the U.S. Senate has already brought up for consideration (but did not pass) a pared-down "tax extenders" package extending certain tax provisions for individuals, families and employers that expired at the end of 2013. These provisions include benefit parity for mass transit expense benefits (making them equal to parking benefits) and tuition assistance under Internal Revenue Code Section 222.
- The U.S. Senate recently approved a three-month extension of the long-term unemployment insurance benefits program, which had been allowed to lapse at the end of 2013. Thus far, the House of Representatives has not acted; Speaker of the House John Boehner (R-OH) has insisted that the cost of an extension must be offset, though no revenue provisions to pay for doing so have yet been proposed. The program costs approximately $25 billion annually.
- Lawmakers have also expressed interest in a permanent so-called "doc fix" to stabilize payments made to Medicare providers. The late-2013 budget agreement postponed (through March) cuts to provider payments required under the sustainable growth rate (SGR) formula. The Congressional Budget Office has estimated that permanently repealing the SGR formula would cost $116.5 billion over 10 years. However, according to new Congressional estimates, the cost of doing so now is considerably less expensive that prior estimates. Consequently, there is a great deal of bipartisan interest in enacting the permanent fix now. Nonetheless, another temporary measure to forestall deep cuts in the short-term may be needed while a final deal is still being negotiated.
- The U.S. Treasury is expected to exceed the federal “debt limit” sometime in the late winter or early spring. As in the past, failure to raise the limit would cause the country to at least technically (if not actually) default on its obligations. A legislative measure to raise the debt limit could provide an opportunity for lawmakers to address other policy aims, especially revenue-raising measures such as spending cuts or tax increases, or a delay in the imposition of the individual mandate penalties under PPACA. It is never certain when the debt limit will be reached since it is dependent upon many factors (e.g. tax receipts, the timing of required government payments, the success of extraordinary measures to borrow among various government accounts, etc.). There is some belief that if the federal government can avoid raising the debt limit until at least April 15 when substantial income tax payments are received, that the date the debt limit is reached could be pushed back considerably.
- Leaders of the two Congressional tax-writing committees – the House Ways and Means Committee and the Senate Finance Committee – continue to state their commitment to pursuing comprehensive tax reform. This year, we can expect committee leaders to issue discussion drafts and hold hearings to develop a broad framework for moving forward. The current chairman of the Senate Finance Committee, Max Baucus (D-MT), will soon resign from the Senate upon his confirmation as the new U.S. Ambassador to China. It seems very possible that as he departs Congress he will unveil additional proposals to stimulate conversation on tax reform. His likely successor as chairman, Senator Ron Wyden (D-OR), has a long-time interest in comprehensive tax reform and, like Baucus, a tradition of working on a bipartisan basis. The House of Representatives Ways & Means Committee chairman, Rep. Dave Camp (R-MI), has also strongly endorsed the need for comprehensive tax reform and has teamed up with Baucus over the last year to promote the effort. Congressional leaders in both the House and Senate have been less enthusiastic about the idea. In particular, House Republican leaders are well aware that major tax reform results in “winners” and “losers” and they do not want any message emerging that would distract from their efforts to focus during this election year on the difficulties associated with the roll-out of PPACA. At most we might see some revealing of tax reform ideas, but no one at this time expects the tax-writing committees to actually consider a bill during 2014. (The Council previously addressed the future of tax reform in the October 23, 2013, Benefits Byte.)
- Among the possible legislative provisions that could arise in Congressional negotiations are elimination of "stretch IRAs," meaning that certain non-spouse beneficiaries of IRA owners and retirement plan participants would be required to take inherited distributions over no more than five years. Additional increases to Pension Benefit Guaranty Corporation (PBGC) premiums paid by defined benefit plan sponsors could potentially be considered again. The bipartisan budget agreement in 2013 included an $8 billion increase, on top of the $9 billion increase enacted in 2012 as part of the MAP-21 transportation measure. President Obama, in prior budget proposals, has called for $25 billion in premium increases, leaving another $8 billion “on the table.” Several sponsors of defined benefit pension plans face funding challenges as a result of the phase-out of some of the funding relief enacted in MAP-21, so their priority is a renewed effort to achieve further funding stabilization.
The Council hosted a Membership Update webinar on January 21 to discuss many of these developments in more detail and answer member questions. A recording of this webinar, along with the presentation slides, is now available for download or streaming.
For more information, contact Diann Howland, vice president, legislative affairs, at (202) 289-6700.