American Benefits Council
Benefits Byte


June 30, 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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PBGC Projections Show Improvement in Single-Employer Plans, Multiemployer Plans at Serious Risk

The Pension Benefit Guaranty Corporation (PBGC) published its Fiscal Year 2013 Projections Report on June 30, revealing that the financial condition of the single-employer insurance program is likely to improve over the next decade, while multiemployer plans continue to pose serious concerns for participants and the PBGC.

According to the report, the projected deficit of $27.4 billion is projected to narrow to, on average, $7.6 billion by FY 2023 – a roughly $25 billion decrease from last year’s ten-year projected deficit of $32.5 billion in FY 2022. “It is highly unlikely that the single-employer program will run out of funds in the next 10 years,” the report notes. The PBGC attributes these improvements to strong market returns and rising interest rates, as well as recent premium increases.

The Council continues to have questions about the modeling methodology used to prepare the report and urges a full review by Congress of the PBGC’s condition. The discussion of single-employer plans includes a section on “recent single-employer plan trends,” in which PBGC acknowledges increasing “de-risking” activity, in which plan sponsors terminate healthy plans and purchase annuities for participants. The PBGC projection model does not currently account for this activity, although the agency expresses interest in investigating the matter in future reports.

In contrast to the single-employer program, the PBGC depicts a much more troubled outlook for multiemployer plans, projecting that the multiemployer program’s 2013 deficit of $8.3 billion will widen to, on average, $49.6 billion by FY 2023. “Absent premium increases and/or changes in law, the program is more likely than not to run out of funds in eight years and highly likely to do so within 10 years.” The multiemployer plan funding rules instituted by the Pension Protection Act of 2006 are scheduled to expire at the end of 2014 and it is unclear if Congress will be able to extend or address these rules before the end of the year.

The PBGC’s report also details numerous changes to its Multiemployer Pension Insurance Modeling System (ME-PIMS)

The Council issued a statement in conjunction with the release of the PBGC’s report, expressing optimism that the report will help Congress understand the clear distinction between single-employer and multiemployer pension plans. “We commend PBGC for this report, so Congress can pursue policies that are appropriate for each of the two guarantee programs that PBGC administers,” said Klein.

The Council also noted that the enormous projection change in just one year underscores the inherent risk of evaluating long-term obligations, such as pensions, at a single point in time. The Obama Administration (in its proposed FY 2015 budget) and some lawmakers have recently proposed increasing premiums – on top of nearly $17 billion in increases over the past two years. The Council recently commissioned an independent research report, Further PBGC Premium Increases Pose Greatest Threat to Pension System, which concluded “premium increases threaten the long-term viability of the defined benefit pension system and PBGC’s plan termination insurance program by driving away employers that present no risk to the system.”

“We hope today’s report puts to rest any further attempts to increase premiums for the single-employer program,” Klein said.

For more information, contact Lynn Dudley, senior vice president, global retirement & compensation policy, and Diann Howland, vice president, legislative affairs, at (202) 289-6700.

Supreme Court Exempts "Closely Held" Companies from Contraceptive Coverage Mandate

In a narrowly worded, five-to-four decision issued on June 30, the U.S. Supreme Court ruled that the preventive care regulatory provisions promulgated to implement the Patient Protection and Affordable Care Act (PPACA) do not require comprehensive coverage of contraceptive services where a “closely-held” employer holds religious objections to such coverage.

The plaintiffs in Burwell v. Hobby Lobby Stores and Conestoga Wood Specialties Corp. v. Sebeliuschallenged the PPACA regulations that mandate contraceptive coverage as violating statutory and constitutional protections of religious liberty. As we reported in the March 25 Benefits Byte, in both cases the for-profit company owners, as health plan sponsors, hold religious objections to providing coverage for some forms of birth control. (Religious institution employers and religiously-affiliated plan sponsors may claim an exemption under PPACA’s implementing regulations.)

Specifically, the companies maintained that for-profit corporations are protected by the constitutional right to religious freedom and the Religious Freedom Restoration Act of 1993 (RFRA) and should be able to refuse to provide contraceptive coverage based on the religious beliefs of the corporations' owners. The government, however, argued such claims have not been historically recognized and are limited to individuals and non-profit religious groups.

The majority opinion, authored by Justice Samuel Alito, held that the contraceptive coverage mandate violates the RFRA, as it applies to “closely held corporations” by imposing a “substantial burden” on religion. Under the RFRA, the government may not impose a substantial burden on religion unless the government does not have a less restrictive means of achieving a compelling interest. (According to the IRS, a “closely held corporation” (1) has more than 50 percent of the value of its outstanding stock owned (directly or indirectly) by five or fewer individuals at any time during the last half of the tax year, and (2) is not a personal service corporation.)

The majority opinions cited the Obama Administration’s accommodation of non-profit religious organizations, spelled out in final regulations issued in July 2013, as an approach that is less restrictive than requiring employers to fund contraceptive methods that violate their religious beliefs. Under these regulations, as we reported in a previous Benefits Byte:

  • With respect to insured plans, including student health plans, affected religious organizations (such as schools or hospitals) would provide notice to their insurer. The insurer would then notify enrollees that it is providing them with no-cost contraceptive coverage through separate individual health insurance policies.
  • With respect to self-insured plans, as well as student health plans, these religious organizations would provide notice to their third party administrator. In turn, the third party administrator would work with an insurer to arrange no-cost contraceptive coverage through separate individual health insurance policies.

The assertion that the contraceptive coverage is “no-cost” assumes that the actual cost of those individual policies covering contraception is not reflected elsewhere in an employer’s overall health care costs or in the portion of the costs that employees are called upon to share. Nonetheless, that “solution” was acceptable for some, but not all, religious institutions that had raised objections to being required to pay for contraceptive coverage for employees.

Despite the way it is repeatedly described in the media, PPACA itself does not require coverage for contraception services. When enacted, the law required all new health plans to provide first-dollar coverage of preventive services that fall into certain categories. With respect to women’s health, it identified “preventive care” as provided for in comprehensive guidelines to be supported by the Health Resources and Services Administration – an agency of the U.S. Department of Health and Human Services (HHS).

To inform the implementation of that requirement, HHS commissioned the Institute of Medicine (IOM) to publish a report recommending the guidelines to be supported. In August 2011, very shortly after the release of IOM’s Clinical Preventive Services for Women: Closing the Gaps, HHS adopted the IOM’s recommendations, including coverage of contraception methods without imposing any cost sharing. While it may be a distinction without a real difference, Congress never mandated health plan coverage for contraceptive services. Rather, it was the HHS implementation of the preventive care section of the law which requires that coverage.

Importantly, Alito noted in his opinion that the ruling was “very specific” and should not be construed as permitting for-profit corporations or commercial enterprises to “opt out of any law they judge incompatible with their sincerely held religious beliefs.”

Congressional Democrats have largely criticized the ruling, although it is not certain whether the matter will be addressed legislatively. For more information, contact Kathryn Wilber, senior counsel, health policy, or Katy Spangler, senior vice president, health policy, at 202-289-6700.

Summary Now Available for Supreme Court Stock Drop Case Decision

As previously reported, on June 25 the U.S. Supreme Court ruled in Fifth Third Bancorp v. Dudenhoeffer, rejecting the prior law presumption that buying or holding employer stock in an Employee Stock Ownership Plan (ESOP) is prudent. However, the Court also provided new rules that could significantly reduce successful claims simply based on the price of an employer stock dropping (often referred to as “stock drop” cases) or that the fiduciary should have taken an action based on “inside information.” This is an important positive development for plan-sponsors with publically traded stock funds. A summary of the case and an analysis of the Supreme Court’s decision, prepared by Davis & Harman, LLP, is now available on the Council website.

For more information, contact Jan Jacobson, senior counsel, retirement policy, or Lynn Dudley, senior vice president, global retirement & compensation policy, at (202) 289-6700.

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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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