American Benefits Council
Benefits Byte


April 8, 2014

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.

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Obama Administration Reverses Course on Medicare Advantage Cuts

In an April 7 news release, the U.S. Department of Health and Human Services (HHS) and the Centers for Medicare and Medicaid Services (CMS) announced that it would not implement proposed rate cuts to the Medicare Advantage (MA) program for 2015.

CMS had recently proposed a 1.9 percent cut in the 2015 payment rates for the MA program (although independent studies suggested that the effective rate cut would be closer to six percent), after PPACA and subsequent payment changes had already resulted in a 6.7 percent rate reduction in 2014. The April 7 announcement indicates that the forthcoming MA Payment Guide will instead increase payment rates by 0.4 percent in 2015.

The proposed cuts posed significant concerns for retiree health plan sponsors, insurers, and beneficiaries. The Council had sent a letter to CMS in February expressing concern that “further rate reductions could detrimentally affect retirees in the form of higher out-of-pocket costs, less coverage and fewer provider options for retirees." The Council more recently joined with five other groups on a similar group letter to CMS on March 6.

For more information, contact Kathryn Wilber, senior counsel, health policy, at (202) 289-6700.

Senate Passes UI Bill With Pension Funding Stabilization; House Next?

The U.S. Senate formally approved the bipartisan Emergency Unemployment Compensation Extension Act (H.R. 3979) on April 7, a measure to temporarily extend long-term unemployment insurance (UI) for four months. As we detailed in the March 13 Benefits Byte, the federal revenue cost of this extension is partially offset by a temporary delay in the phase-out of the pension funding stabilization provision originally enacted as part of a 2012 transportation measure.

The funding stabilization provision, originally advanced by the Council and enacted in the 2012 MAP-21 law, helps mitigate funding volatility by "smoothing out" the effect of historically and artificially low interest rates by constricting the segment rates used to determine funding status to be within 10 percent of a 25-year average of prior segment rates. A Benefits Blueprint summary of the new provision, prepared by Kent Mason of Davis & Harman LLP, is now available.

The subsequent phase-out of the original MAP-21 stabilization provision – under which the 10 percent corridor is gradually increased to 30 percent – has reduced the effectiveness of the measure, leading the Council to advocate for an extension of the program. The UI measure essentially follows the Council's recommendation to delay the phase-out until 2017.The Senate’s UI agreement also gives employers an option to apply the new rule for 2013 and allows prepayment of PBGC flat-rate premiums for up to five years.

The measure will now proceed to consideration in the House of Representatives, but Republican leaders there have indicated opposition to the bipartisan Senate measure. For more information, contact Diann Howland, vice president, legislative affairs, or Lynn Dudley, senior vice president, global retirement and compensation policy, at (202) 289-6700.

Lawmakers Talk Tax Reform in Senate Budget Committee

On April 8, the U.S. Senate Budget Committee held the hearing Supporting Broad-Based Economic Growth and Fiscal Responsibility through a Fairer Tax Code to discuss tax reform.

In her opening statement, Chairman Patty Murray (D-WA) described financial challenges facing low- and middle-income families and called for comprehensive tax reform as part of a solution. “Changes in the tax code cannot solve the problem[s of the economy] alone, but there is no question that tax reform can and should be a powerful tool in the fight, because right now inefficiency and unfairness are actually making things worse.”

Murray recently introduced the 21st Century Worker Tax Cut Act (S. 2162), a measure intended primarily to expand the Earned Income Tax Credit for low-income workers. The revenue cost of the measure is partially offset by changes to executive compensation provisions of the Internal Revenue Code. Specifically, under Section 162(m), the definition of “covered employee” would be changed from “covered employee” to  “covered individual” and the tax code would be amended to change both the number and type of individuals to whom 162(m) applies from “the chief executive officer and the next four most highly compensated individuals” to “the officer, director or employee of the taxpayer or former officer, director or employee of the taxpayer.”  S. 2162 would also eliminate the current law exception for commission-based pay, a provision previously included in the wide-ranging tax reform proposal offered by House of Representatives Ways and Means Chairman Dave Camp (R-MI). (Camp’s proposal would also eliminate the exception for performance-based compensation, but Murray did not adopt that provision.) The Senate measure also makes some changes to Code Section 162(m)(6) the limitation on pay for health insurance providers.

Specific details of the bill was not addressed during the hearing. Rather, the following witnesses focused on the general need for thoughtful, comprehensive tax reform:

  • John L. Buckley, former chief counsel for the House Committee on Ways and Means and former chief of staff for the Joint Committee on Taxation, described the demographic and fiscal changes that have occurred since enactment of the Tax Reform Act of 1986 and how it complicates efforts to take a similar approach now. During the question-and-answer period, Buckley briefly discussed how Camp’s tax proposal could be viewed as a manipulation of the standard ten-year budget window. Camp’s plan, he said, “forces everyone into Roth IRAs and claims that to be a revenue increase. It’s not a revenue increase; it’s a tax benefit disguised as a revenue increase within the budget window.” Buckley explained how financing a tax rate reduction using revenue from such “timing” methods produces a seemingly revenue neutral budget during the budget window but leads to future deficits – a point the Council has emphasized in its defense of the pre-tax incentives for defined contribution plans.
  • Jane Gravelle, senior specialist in economic policy at the Congressional Research Service (CRS), cited a recent study that highlighted difficulties in broadening the base and lowering tax rates, noting that most tax expenditures are viewed as serving an important purpose – including, for example, the tax incentives for providing defined benefit pension plans.
  • Diana Furchtgott-Roth, a senior fellow at the Manhattan Institute for Policy Research, emphasized the power of lower taxes to facilitate economic growth. She also sought to refute the notion that income inequality is bad for economic growth. “Much of the concern about inequality is caused by problems of measurement and changes in demographic patterns over the past quarter-century,” she said.

While tax reform remains extremely unlikely this year, the Council continues to engage in substantive conversations with policymakers on the subject and the potential ramifications of dramatic changes in the health and retirement plan tax incentives. We welcome your input as we continuously refine our message on these matters. As we previously reported, a new chart, provided courtesy of Davis & Harman LLP, describes the various employee benefit proposals in Camp’s Tax Reform Act of 2014, and a recording of the Council’s recent Benefits Briefing webinar on the Camp tax proposal is now available upon request.

For more information, contact Diann Howland, vice president, legislative affairs, 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.

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