American Benefits Council
Benefits Byte

2014-034

April 23, 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.

Click here to read past issues on the Benefits Byte Archive page.

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GAO Issues Report on Retirement Plan Tax Incentives

A new report issued on April 20 by the Government Accountability Office (GAO) suggests that the current defined contribution plan contribution limits affect relatively few low- and middle-income individuals, making the reduction of these limits a potential target as part of comprehensive tax reform or to raise revenue outside that context.

The report, Private Pensions: Pension Tax Incentives Update, was requested by Senator Ron Wyden (D-OR), Chairman of the Senate Finance Committee and a key figure in the development of tax reform legislation. The report updates previous GAO studies on the number of new plans that have been formed since 2009 and the income characteristics of plan participants affected by the contribution limits.

GAO found that, from 2009 through 2011, the number of newly formed plans each year remained relatively flat but below the levels reported previously for 2003 through 2007. Overall, there were about 52,000 fewer private single-employer pension plans in 2011 than there were in 2000, although the total number of participants actually rose throughout the decade.

Most notably, GAO found that approximately six percent of all defined contribution plan participants who made contributions in 2010 were affected by the applicable limits (up from five percent in 2007 and a negligible number of participants were at the overall contribution limit on the sum of employer and employee contributions. The report concludes that participants contributing at the limits were found to have “disproportionately higher earnings” (90th percentile and higher) and were “overwhelmingly” more likely to be male.

Among the previous reports issued by GAO and its lead retirement policy analyst Charles A. Jeszeck was the March 2011 report Private Pensions: Some Key Features Lead to an Uneven Distribution of Benefits. The 2011 report suggested that while “the existing system of tax preferences for pensions has played at least a supporting role in fostering current levels of pension plan coverage” and “recent initiatives, such as automatic enrollment, may increase participation,” it appears that “For [defined contribution] plans, a disproportionate share of these tax incentives accrues to higher income earners.” While the new GAO report stops short of this assertion, it leaves the impression that the current tax incentives have been ineffective.

The Council has consistently refuted this notion while emphasizing the power of these plans to elevate retirement savings at all income levels. Our research includes Our Strong Retirement System: An American Success Story, a white paper that gathers the most recent statistical data and the results of rigorous academic research to demonstrate the strength of the private retirement system, recently discussed at a March 27 event for Capitol Hill staff.

As we continue to engage policymakers on tax reform and the potential ramifications of dramatic changes in the health and retirement plan tax incentives, we welcome your participation and input. For more information, contact Diann Howland, vice president, legislative affairs, at (202) 289-6700.



District Court Rules For Fiduciary in Stock Drop Case

The U.S. District Court for the Eastern District of Michigan ruled in favor of the independent fiduciary in a retirement plan “stock drop” case on April 11, generally reaching the same conclusion as an earlier decision that had previously been rejected by the U.S. Court of Appeals for the Sixth Circuit

In the case of Raymond M. Pfeil and Michael Kammer v. State Street Bank and Trust Company, General Motors’ (GM) hourly and salaried 401(k) plans offered GM stock as an investment alternative. No amounts were invested in the GM stock fund absent an affirmative election by a participant and participants had the discretion to change their allocation in any investment on any business day.

The plaintiff-participants filed a class action in 2009, suing State Street (the only defendant, since State Street, as an independent fiduciary, continued to hold GM stock in the GM retirement plans during the period before the GM bankruptcy) for retaining the GM stock fund as an investment option after public information raised questions about GM’s short-term viability outside of bankruptcy. At that time, the U.S. District Court for the Eastern District of Michigan held that the plaintiffs had sufficiently pleaded a breach of fiduciary duty, but dismissed the case on the grounds that any alleged breach did not cause plan losses; any plan losses were caused by participants’ own decisions with regard to investment in company stock.

As we reported in the February 23, 2012, Benefits Byte, the appeals court subsequently overturned the decision, ruling that plan fiduciaries have a duty to offer only prudent investments and cannot escape liability for imprudent investment options on the grounds that the participants have the choice as to whether to invest in such options. The case was then remanded back to the district court. The Council had filed an amicus (friend of the court) brief with the Sixth Circuit in this case, supporting the earlier findings of the district court.

Upon a re-hearing of the case, the district court said it was “unable to conclude that State Street’s decision not to divest the stock until March 31, 2009, was an imprudent decision in light of the presumption of reasonableness standard,” and dismissed the case. The court’s decision was based on a general “presumption of reasonableness” rather than the “presumption of prudence” that was the basis of the earlier district court decision and the appeals court decision. In making its latest ruling, the district court focused on State Street’s prudent process used to make decisions about prohibiting new investments, retaining and ultimately liquidating GM’s stock held in the plan.

The Council’s has consistently argued that ERISA stock drop lawsuits, which can be filed anytime the employer’s stock price declines or performs below expectations, threaten the continued viability of company stock investment options in defined contribution plans. For more information, contact Jan Jacobson, senior counsel, retirement policy, or Lynn Dudley, senior vice president, global retirement and compensation policy, at (202) 289-6700.



IRS Releases 2015 Indexed Amounts for HSAs, HDHPs

On April 23, the U.S. Treasury Department and Internal Revenue Service (IRS) released Revenue Procedure 2014-30, which lists the 2015 indexed amounts, adjusted for inflation, for health savings accounts and high-deductible health plans (HDHPs). (In some cases, this resulted in no change from the prior year.) The following table lists the current 2014 amounts and the new 2015 amounts:

 

Calendar Year 2014

Calendar Year 2015

Self-only

Family

Self-only

Family

Annual Contribution Limit

$3,300

$6,550

$3,350

$6,650

HDHP Minimum Deductible

$1,250

$2,500

$1,300

$2,600

HDHP Out-of-Pocket Limit
(includes deductibles, co-payments and other amounts but not premiums)

$6,350

$12,700

$6,450

$12,900

 

The Revenue Procedure is effective for calendar year 2015. For more information, contact Kathryn Wilber, senior counsel, health policy, 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.

Notice: the information contained herein is general in nature. It is not, and should not be construed as, accounting, consulting, legal or tax advice or opinion provided by the American Benefits Council or any of its employees. As required by the IRS, we inform you that any information contained herein was not intended or written to be used or referred to, and cannot be used or referred to (i) for the purpose of avoiding penalties under the Internal Revenue Code, or (ii) in promoting, marketing or recommending to another party any transaction or matter addressed herein (and any attachment).