American Benefits Council
Benefits Byte

2014-058

July 10, 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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House, Senate Approve Transportation Funding with Pension Funding Stabilization; Stretch IRA Proposal Not Included

In two separate July 10 “mark-up” sessions, the U.S. House of Representatives Committee on Ways and Means and the U.S. Senate Committee on Finance each approved measures to extend federal transportation funding.

Both measures include differing provisions renewing the pension plan funding stabilization (or “smoothing”) measure originally passed as part of the previous transportation bill, the Moving Ahead for Progress in the 21st Century (MAP-21) Act of 2012. Neither bill includes any proposal to shorten the payment period of plan and IRA assets after the death of the participant or IRA owner, often referred to as the “stretch IRA” proposal, even though this proposal was included in the original Finance Committee version of the bill.  

The MAP-21 provision, originally advanced by the Council, stabilized interest rates for purposes of calculating defined benefit plan funding by constricting the segment rates used to determine funding status within 10 percent of a 25-year average of prior segment rates. 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.

Because 2017 is the earliest year that pension interest rates could return to normal based on the Federal Reserve Board's monetary approach, this provision matches congressional intent with the Fed’s announced policy.

House Ways and Means Measure

The Highway and Transportation Funding Act (H.R. 5021), approved by theWays and Means Committee by a voice vote, included a pension funding stabilization provision identical to a proposal previously included in a Senate unemployment insurance extension agreement from earlier in the year.

The provision essentially delays the MAP-21 phase-out until 2017:

House Highway and Transportation Funding Act (H.R. 5201)

If the calendar year is:

The applicable minimum percentage is:

The applicable maximum percentage is:

2012 - 2017

90%

110%

2018

85%

115%

2019

80%

120%

2020

75%

125%

After 2020

70%

130%

 

The measure is projected to raise $6.4 billion over ten years.

In his opening statement, Ways and Means Committee Chairman Dave Camp (R-MI) described the House funding plan and the inclusion of pension funding in that proposal as “the only package with a proven history of getting big bipartisan votes in both the House and Senate.”

During discussion of H.R. 5201, Representative Earl Blumenauer (D-OR) offered a substitute amendment to shorten the highway trust fund financing extension from June 1, 2015 to January 1, 2015, citing the need to put pressure on the committee and Congress to take long-term action to shore up the highway trust fund. The substitute amendment did not include the pension funding stabilization provision. The amendment failed 23-16 in a party-line vote.

Senate Finance Committee Measure

The Preserving America's Transit and Highways (PATH) Act, approved by the Finance Committee by voice vote, included a modified version of the Senate’s pension funding stabilization provision.

The Senate provision essentially provides for a three-year extension of the MAP-21 provision, rather than five years under the House bill:

Senate PATH Act

If the calendar year is:

The applicable minimum percentage is:

The applicable maximum percentage is:

2012 - 2015

90%

110%

2016

85%

115%

2017

80%

120%

2018

75%

125%

After 2018

70%

130%

 

The measure is projected to raise $2.7 billion over ten years.

Committee Chairman Ron Wyden (D-OR) said in his introduction that the measure would help employers  “[set] aside funds to protect endangered pensions and the needs of workers in a tough, global economy,” though he noted that some Senators have voiced concerns about more pension smoothing for the long-term solvency of the pension system. He also said that pension funding measures should be used by the end of the year to address problems with the United Mine Workers retiree health and pension funds.

In an opening statement, the committee’s ranking Republican member, Orrin Hatch (R-UT), noted, “As I have said many times, I am not a fan of pension smoothing, but in the context of this bipartisan highway mark which is of critical importance to the country, I have given my agreement.”

During discussion of the PATH Act, Senators Tom Carper (D-DE) and Benjamin Cardin (D-MD) introduced a Democratic substitute amendment, similar to the amendment offered by Blumenauer in the House. The substitute amendment was defeated by a 14-10 vote.

Also during debate, Senator Sherrod Brown (D-OH) offered and then withdrew an amendment that would have addressed the perceived misclassification of certain employees as independent contractors.

The House and Senate measures are now expected to proceed to their respective full chambers, where they are likely to be approved. A conference committee may then be necessary to resolve any differences between the two bills. The Council will closely monitor both measures for any modifications during the remainder of the legislative process. For more information, contact Lynn Dudley, senior vice president, global retirement & compensation policy, at (202) 289-6700.



Council Raises Concerns with NCOIL Pension De-Risking Proposal

On July 9, the Council sent a letter to the National Conference of Insurance Legislators (NCOIL) raising concerns with its proposed Pension De-Risking Model Act.

NCOIL’s mission is to help legislators make informed decisions on insurance issues that affect their constituents and to oppose federal preemption of state authority to regulate insurance. As part of this work, NCOIL develops model legislation that it then urges state legislatures to adopt.

The Model Act would impose new requirements on all purchases of annuities to satisfy pension liabilities, including “de-risking” activities used to partially discharge pension plan liabilities under ERISA and for full terminations where an ERISA plan’s liabilities are completely discharged. The proposal requires:

  • state regulatory approval of the transaction.
  • opportunities for plan participants to opt out of the transaction.
  • the right for participants to request a lump-sum option at regular intervals.
  • supplemental protection equal to the Pension Benefit Guaranty Corporation’s (PBGC) coverage forplans.
  • other disclosures and protections similar to those that ERISA requires with respect to plans.

The Model Act relates solely to ERISA plans and does not apply to any annuity contract unrelated to an ERISA plan.

The Council’s letter explained that “the Model Act, if adopted by any state, would temporarily severely undermine the voluntary nature of our pension plan system and force employers to remain in untenable, economically volatile situations,” and ultimately, the legislation would likely be rendered void by ERISA’s broad preemption provision.

Specifically, the Model Act’s requirement to obtain a state commissioner’s or superintendent’s approval of any annuity purchase transaction and a participant’s right to opt out of the transaction would likely be preempted by ERISA’s well-established authority giving employers the right to decide whether to terminate a plan in whole or in part. Other provisions, such as the right to distribute lump sums at regular intervals, would be so burdensome and cost-prohibitive that they would also probably be preempted by ERISA. In fact, the entire Model Act would likely be preempted because it is targeted not at insurance generally, but rather only at annuities issued in connection with ERISA plans and thus is an attempt to regulate ERISA plans.

The Council intends to discuss these concerns with NCOIL in more detail to address the underlying issues that challenge employers offering defined benefit pension plans and allow employees to utilize these retirement plans to prepare for a secure retirement. A summary of the Model Acts’ provisions is also available on the Council’s web site.

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



IRS Withdraws Portion of Decades-Old Proposed Regulations on IRA Rollovers

The Internal Revenue Service announced on July 10 that it is withdrawing a select provision of a proposed rule related to IRA-to-IRA rollovers.

The original proposed regulations, issued in July 1981, provided that the rollover limitation under Section 408(d)(3)(B) of the Internal Revenue Code is applied on an IRA-by-IRA basis. This rule is reflected in IRS Publication 590, Individual Retirement Arrangements (IRAs).

However, as we reported in a March 21 Benefits Byte story, a recent tax court opinion in Bobrow v. Commissioner held that the limitation applies on an aggregate basis. Pursuant to that decision, the IRS issued Announcement 2014-15, limiting IRA owners to one 60-day rollover per year.

The IRS therefore is withdrawing the portion of its 1981 proposed regulations related to the rollover limitation. For more information, contact Jan Jacobson, senior counsel, retirement 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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