July 23, 2014
- HELP Committee Approves Bill Amending Defined Benefit Plan 'Shutdown' Procedures under ERISA 4062(e)
- House Oversight Subcommittee Hears Preliminary Results of GAO Study on PPACA's Premium Tax Credit
- SEC Amends Money Market Rules
- Senate Subcommittee Discusses Bill Extending Savings Assistance to Families with Disabled Children
HELP Committee Approves Bill Amending Defined Benefit Plan 'Shutdown' Procedures under ERISA 4062(e)
In a closed-door session on July 23, the Senate Health, Education, Labor and Pensions (HELP) Committee approved a modified version of S. 2511, a bill to clarify the definition of “substantial cessation of operations” under ERISA Section 4062(e). The measure was approved by a bipartisan voice vote. [Note: the official language approved by the committee may not be available until September.]
Under current law, if an employer with a pension plan shuts down operations at a facility – and, as a result of that shutdown, more than 20 percent of the workers who are plan participants are separated from employment – the employer is required to provide the PBGC with short-term financial guarantees in the form of a bond or escrow amount based on the plan's unfunded termination liability.
PBGC has, in the last few years, become very aggressive in its enforcement of this ERISA provision in many respects. This approach has given rise to significant compliance challenges and large unexpected liabilities for many companies that have engaged in normal business transactions (such as the sale of a very small business unit or the consolidation of small operations at different facilities).
The Council, extremely concerned that the PBGC's enforcement approach represents a misinterpretation of the ERISA statute, met with PBGC officials on the matter. We also submitted comments to PBGC, including a recent letter to the PBGC Board of Directors delivered through the PBGC plan sponsor advocate, and worked closely with the sponsors of S. 2511, Senate Health, Education, Labor and Pensions (HELP) Committee Chairman Tom Harkin (D-IA) and ranking Republican member Lamar Alexander (R-TN).
Very generally, S. 2511 would:
- Ensure that there is no 4062(e) event unless there is a substantial shutdown of operations at a facility relative to the size of the entire employer.
- Ensure (subject to certain exceptions) that there is no 4062(e) event unless employees lose their jobs, as opposed to going to work for another employer.
- Significantly reduce the scope of an employer’s liability if there is a 4062(e) event.
The new rules would apply to prior transactions, as well as future transactions. The legislation is intended to return enforcement to its original purpose, which was to provide a tool for PBGC when a true cessation of operation is signaling a spiraling down of the company’s financial condition.
Now available on the Council website is a summary memorandum, prepared by Davis & Harman LLP, providing a more detailed description of the issue and the provisions of S. 2511.
The HELP Committee’s noncontroversial, bipartisan approval of S. 2511, and its ongoing dialogue with the U.S. House of Representatives Education and Workforce Committee, suggests that the measure could receive positive consideration by Congress this fall.
The Council will continue to support the measure and report on any additional developments related to Section 4062(e). For more information, contact Lynn Dudley, senior vice president, global retirement & compensation, or Diann Howland, vice president, legislative affairs, at (202) 289-6700.
House Oversight Subcommittee Hears Preliminary Results of GAO Study on PPACA's Premium Tax Credit
In a July 23 hearing, the U.S. House of Representatives Ways and Means Subcommittee on Oversight heard preliminary reports on a study by the Government Accountability Office (GAO) on whether there are appropriate internal controls in place to prevent fraud and abuse in the health insurance exchanges under the Patient Protection and Affordable Care Act (PPACA). The timing of hearing, which had been previously scheduled, was especially interesting coming the day after dual and conflicting appeals court decisions relating to subsidies in federal exchanges (see the July 22 Benefits Byte story)
The hearing, entitled The Integrity of the Affordable Care Act’s Premium Tax Credit, follows a June 10 joint subcommittee hearing (from the House Subcommittees on Oversight and Health) on the government’s ability to verify income and insurance information as required under PPACA (See the June 13 Benefits Byte). The GAO study was requested by the committee in September 2013, to address the challenges of identity and income verification.
In his opening statement, Chairman Charles Boustany (R-LA) asked whether there were adequate controls within the federal exchange to protect taxpayer dollars from fraud, waste and abuse. He cited results from the GAO study, indicating that when the GAO applied for premium subsidies online or over the phone with fictitious names, Social Security Numbers and documents to test the internal controls, it succeeded over 91 percent of the time. “Time and time again, the Administration has chosen to either ignore the law, or when it does implement the law, it does so incompetently,” he said.
Ranking Member John Lewis (D-GA) countered with a defense of the PPACA, stating that here there is an opportunity to be “proactive” instead of reactive to find and fight waste, fraud, and abuse.
The subcommittee heard testimony from Seto Bagdoyan, acting director of audit services in the Forensic Audits and Investigative Service of the GAO. Bagdoyan explained the process used by the GAO in the study:
- Eighteen fictitious identities were created for the purpose of making applications for individual health care coverage.
- Twelve of the eighteen identities were used to test “front-end” controls for verifying identity and income levels; half were made by phone and half were online. Eleven of the twelve were approved for coverage by the federal Marketplace. Regardless of the status of the post-approval requests, the eleven approved applications are continuing to receive coverage as well as premium tax credits and cost-sharing reduction subsidies.
- Six of the eighteen identities were used to test in-person income verification controls to see the extent to which customer service representatives would encourage applicants to misstate income in order to qualify for a subsidy. In five of the six scenarios, the GAO was unable to obtain assistance for a variety of reasons, including a representative saying they did not have the required training to help, being redirected to make an appointment or contact a call center or due to website issues. In one of the six scenarios, the GAO successfully obtained the correct information on whether stated income would qualify for a subsidy.
Bagdoyan noted that his statement is based on preliminary analysis from the ongoing study and that the results cannot be generalized to the overall applicant or enrollment populations.
In the question-and-answer session, Bagdoyan stated that the GAO has identified issues that they plan to pursue in their ongoing investigations and that they currently have fundamental questions regarding the front- and back-end controls in place. He responded to inquiries about conclusions from the study that due to the ongoing nature, they have identified further areas to investigate but cannot yet draw conclusions. Answering a question about how many fictitious applications got through the website, he said that the applications were all flagged by the website for identity verification and were approved after being referred to contractors or call centers. He responded to questions about how the government could regain funds from unqualified subsidies by saying that the GAO has not begun investigating the auditing process but that it will be investigated in the ongoing testing.
The GAO expects to issue a final report on this study in 2015. For more information, contact Katy Spangler, senior vice president, health policy, at (202) 289-6700.
SEC Amends Money Market Rules
In a 3-2 split decision on July 23, the Securities and Exchange Commission (SEC) adopted final amendments to the rules governing money market mutual funds. The new rules will require institutional prime money market funds to use a floating net asset value (NAV) and allow boards of non-government money market funds to impose new liquidity fees and/or “redemption gates” in certain circumstances.
The SEC also unanimously voted to (1) propose floating NAV money market fund exemptions to the mutual fund transaction confirmation rules, and (2) replace references to ratings agencies in the rules with a subjective valuation by the fund’s board (the proposal has list of objective factors but their use is not required).
SEC Chair Mary Jo White noted that the U.S. Treasury Department and the Internal Revenue Service would also issue a Revenue Procedure and proposed regulations on July 23 to address certain tax issues caused by the change to the floating NAV.
The new floating NAV provision will require institutional prime money market funds to value their portfolio securities using market-based factors and sell and redeem shares based on a floating NAV. This will replace the current special pricing and valuation rules that allow these funds to maintain a constant share price of one dollar. Although the final rules adopt the floating NAV as well as the liquidity fees and redemption gates (which would prohibit redemptions for a time period), White said significant changes were made to “fees and gates.” She indicated that the “gate” trigger threshold has been increased to take effect with higher levels of remaining assets and that use of fees and/or gates is more discretionary. In addition, the maximum time period a gate can be imposed was reduced from 30 days to 10 days.
The final rules, which also include enhanced disclosure requirements, will be effective 60 days after publication in the Federal Register, but will include a two-year transition period to allow funds and investors to adjust systems and investing practices.
The language of the final SEC rule (and the proposed SEC rule previously mentioned) was not yet available at the time of this writing but will be posted on the Council’s website when it becomes available. However, the Internal Revenue Service issued Rev. Proc. 2014-45 on July 23, effectively exempting floating NAV money market funds from certain reporting requirements under the wash sale rules, along with proposed regulations setting forth the method of accounting for gains and losses on shares in certain money market funds.
The floating NAV does not apply to governmental or retail money market funds. One SEC staff member indicated the definition of governmental money market funds will be changed by this rule from one that permits up to 20 percent of assets to be invested in non-government instruments to one that requires that 99.5 percent of assets be invested in government instruments. The final rule also revises the definition of retail funds to include redemption by “natural persons” instead of a limitation on daily redemptions.
For more information, contact Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.
Senate Subcommittee Discusses Bill Extending Savings Assistance to Families with Disabled Children
The Senate Finance Committee’s Taxation and IRS Oversight Subcommittee held a hearing on July 23 to discuss the Achieving a Better Life Experience (ABLE) Act, a measure that seeks to help individuals with disabilities and their families accumulate additional savings.
The ABLE Act was introduced in the Senate in February 2013 as S. 313, sponsored by Subcommittee Chairman Bob Casey (D-PA). At the same time, an identical bill was introduced in the U.S. House of Representatives as H.R. 647, sponsored by Representative Ander Crenshaw (R-FL).
Under current law, disabled individuals with $2,000 in savings are ineligible for assistance under certain federal programs. The ABLE Act authorizes the creation of ABLE Accounts, which would permit a beneficiary to save for expenses such as education, medical and dental care, community support services, employment training and support, moving and assistive technology, housing and transportation.
These accounts, structured like 529 college savings accounts, would be available to individuals eligible to receive supplemental security income benefits under Title XVI of the Social Security Act.
Both measures enjoy strong bipartisan cosponsorship. S. 313 has 74 Senate cosponsors, including Majority Leader Harry Reid (D-NV) and Minority Leader Mitch McConnell (R-KY). H.R. 647 has 367 cosponsors (but none from the leadership, nor the chairs of the committees of jurisdiction).
The committee heard testimony from the following witnesses:
- Sara C. Wolff, self-advocate and board member of the National Down Syndrome Society, described her own financial hardships, particularly after the death of her mother, and urged passage of the law this year. Wolff earlier authored a Change.org petition in support of the ABLE Act that has garnered more than 250,000 signatures.
- Representative Cathy McMorris Rodgers (R-WA), the parent of a child with Down Syndrome, expressed her strong support for the legislation. “Our outdated laws encourage women and men with disabilities to resign themselves to a life of dependence by spending down their assets rather than saving them for future expenses. Unless families have the resources to hire an attorney to create a special trust or some other complicated savings vehicle, there is no other option to establish financial security without risking access to critical government programs for individuals with disabilities,” she said.
- Robert D’Amelio, volunteer advocate for Autism Speaks and parent of three autistic children, cited research indicating that the lifetime cost of care for an individual with autism averages $2.4 million when autism involves intellectual disability and $1.4 million when it does not. He said passage of the legislation was a matter of “fairness,” noting that the current Section 529 plans fall short for the many individuals with autism and other disabilities who cannot or choose not to go on to college.
- Chase Alston Phillips, a financial advisor with Merrill Lynch specializing in clients with disabilities, described how the $2,000 asset ceiling restriction imposed by Social Security Supplemental Security Income and Medicaid prevent many people from saving for retirement and other long term expenses.
The subcommittee members in attendance were uniformly supportive of the legislation. There is not yet a timetable for consideration of the bills on the Senate or House floors, though Senator Richard Burr (R-NC) said that “this measure will pass overwhelmingly” when it is brought for a vote.
The question is whether and how the measure will be paid for. A revenue estimate of S. 313/H.R. 647 has not yet been prepared, but since the accounts would provide a tax benefit, the bills would likely incur a federal revenue loss.
For more information, contact Diann Howland, vice president, legislative affairs, at (202) 289-6700.