Category: Benefits

As many of you already know, the Retail Industry Leaders Association (“RILA”) filed a challenge to Maryland’s Fair Share Health Care Fund Act — the so-called Wal-Mart bill — in U.S. District Court last week. You can access the complaint filed here. You can also access a web page here by RILA devoted to its opposition to state health care mandates as well as this document discussing their arguments in favor of ERISA preemption: “Legal Overview: Discriminatory Health Care Mandates.” Excerpt:

Union supporters also will argue that their proposed laws are not mandated health care laws because they give employers the ?choice? whether to pay money to the state or for increased employee health coverage. But paying the state is no choice at all?it is a penalty?because no employer would ?choose? to write a check to the state for which it received nothing in return. The Supreme Court made essentially the same point when it indicated there would be preemption for ?a state law whose economic effects, intentionally or otherwise, were so acute ?as to force an ERISA plan to adopt a certain scheme of substantive coverage.?? DeBuono v.
NYSA-ILA Med. & Clinical Servs. Fund, 520 U.S. 806, 816 n.16 (1997). In the words of the Supreme Court, this is ?a Hobson?s choice? prohibited by ERISA. Travelers, 514 U.S. at 664.

The Workforce Prof Blog has comments here regarding the litigation.

See a previous post here at Benefitsblog discussing the legal debate over the legislation.

Portion of the President’s State of the Union address on health care:

“Keeping America competitive requires affordable health care. (Applause.) Our government has a responsibility to provide health care for the poor and the elderly, and we are meeting that responsibility. (Applause.) For all Americans — for all Americans, we must confront the rising cost of care, strengthen the doctor-patient relationship, and help people afford the insurance coverage they need. (Applause.)

We will make wider use of electronic records and other health information technology, to help control costs and reduce dangerous medical errors. We will strengthen health savings accounts — making sure individuals and small business employees can buy insurance with the same advantages that people working for big businesses now get. (Applause.) We will do more to make this coverage portable, so workers can switch jobs without having to worry about losing their health insurance. (Applause.) “

Allan Hubbard, Assistant to the President for Economic Policy and Director, National Economic Council, and Roy Ramthun, Special Assistant to the President, National Economic Council, followed up with a special press briefing today with more details on the President’s health-care initiative. You can access the transcript of the briefing here. Excerpts from the transcript:

“Now, as you know, the President spent much of last night, when he talked about health care, talking about enhancing and improving health savings accounts. These accounts are working extremely well. We had — a million people had health savings accounts a year ago; today there are 3 million. This is an opportunity for people to have, as they say, more skin in the game. The better consumers and the frustration that we’ve heard from the people with HSAs is that they don’t have as much — they don’t have the information they need to be good consumers. And that’s why the President is going to be talking about this, and working with employers and insurance companies to encourage them to work with us to insist that providers provide this information.

With respect to HSAs, what the President wants to do is level the playing field so people who buy insurance, themselves, have the same tax advantages as people who get the HSAs through employers. Right now if you buy the — literally, the same insurance policy, the same HSAs, you pay 30 percent to 50 percent more than you would if you got it through your employer. That is not fair, and the President wants to fix that. He also wants to allow people to contribute significantly more to the HSA up to their out-of-pocket max. And, finally, he wants to give employers and insurance companies the options of making HSA’s portable.

Now, you know, some people say, well, HSAs are just for the rich and the well. As it turns out, of the 3 million people who have taken up HSAs, 37 percent were previously. . . uninsured. . Forty percent earn less than $50,000 a year. So, obviously, HSAs are very attractive to people in the lower side of income scale — and for good reason, because HSAs are less expensive. And they also are a better way to control costs. The costs of HSAs went up 2 percent this past year, while the cost of regular insurance went up 7 percent.”

The briefing also talked about ERISA:

Q Could you then maybe talk a little bit more about on the portability question — what types of rule changes might need to be made, or legislative changes would need to be made to achieve this kind of portability you’re talking about?

DIRECTOR HUBBARD: Absolutely. And, again, what we’re talking about is making this optional for insurance companies and for employers. But the way it would work would be for a portable HSA insurance policy to be ERISA-based, so it would not be tied to any particular state, which would allow someone to leave his or her employer, take that policy with him or her, and know that it would not be underwritten for health reasons. So you can keep that policy with you as long as you want it. And you can take it anywhere in the country.

So, again, it would make it where people would not have job lock, they would not — if they have illness in their family, they would not have to worry about leaving their job, losing their insurance and not be able to find affordable insurance. And this is good for those individuals, and it’s also good for the economy. Because what makes our economy so strong is the ability of people to move from job to job to find the best situation for them.

Q So would that require legislative change, then?

DIRECTOR HUBBARD: That definitely would require —

Q And it would be a change to the HIPAA law or the ERISA law?

DIRECTOR HUBBARD: It would be a change to — I’m going to let Roy answer that.

MR. RAMTHUN: Well, the ERISA law, which was amended by HIPAA, and there’s all kinds of things that we’re going to have to figure out those details.

Q We’ve heard a lot about leveling the playing field in terms of tax breaks, and I’m wondering if we’re giving new tax preferences to HSAs and not to other forms of insurance? Aren’t we, in effect, giving HSAs preference, and doesn’t that keep the insurance industry from sort of doing its market thing and working things out and giving consumers choice?

DIRECTOR HUBBARD: Well, we are giving the preference to HSAs. We think — but, by the way, there’s a lot of flexibility with HSAs in terms of the size of the deductible, the co-insurance provisions and other provisions. But we think HSAs are the prudent way for people to insure themselves in America, because you have catastrophic insurance and then you put into your health savings account money to deal with lower cost health care needs. So you’re absolutely right, this is a bias towards health savings accounts because it’s going to make it where individuals who buy health savings account get the tax advantage that employers get when they provide insurance.

See also this Whitehouse press release here: Affordable and Accessible Health Care.

KaiserNetwork.org has a a whole webpage here devoted to the President’s health-care initiative and more relevant links here.

An article showing negative and positive reaction to the agenda: “President’s Health Reform Agenda Draws Mixed Reviews.”

An interesting survey from Aon–What’s Hot and What’s Not in Voluntary Benefits. According to the survey, the most popular voluntary benefits for the Baby-Boom Generation are disability insurance and life insurance. The most popular voluntary benefits that employees are asking for that their employers don’t offer are long-term care insurance and retiree medical/Medicare supplements.

Read a previous post on the pitfalls of voluntary benefit programs here.

You can access the SEC’s proposed rule pertaining to disclosure requirements for executive and director compensation here. (All 370 pages of it.) After you make your way through it, you may want to make comments to the SEC about the proposed rule here. Access the comments that have already been submitted here.

The Beneblog has been posting about the proposed rules. See also TheCorporateCounsel.net Blog‘s comments here.

Here are some links to benefits-related blogs which have been created:

• Beneblog
• Benefit Plan Blog
• Executive Compensation Blog
• ERISA on the Web
• Public Pension News

In all of my years of practicing law and researching various benefits and tax issues, I must admit that I have never had to research the issue of “whether Antarctica is a foreign country for purposes of the Internal Revenue Code.” See how the Tax Court resolved the issue in this interesting case: Arnett v. IRS. (Source: RothCPA.com.)

Hot off the press–proposed regulations providing “comprehensive guidance on the taxation of distributions from designated Roth accounts under section 401(k) and section 403(b) plans.” The provisions of the final section 401(k) regulations regarding designated Roth contributions which were issued on January 3, 2006, did not address the taxability of distributions from designated Roth accounts or the reporting requirements that apply to contributions of designated Roth contributions or distributions from the accounts. These proposed regulations address those issues. In addition, they also provide guidance with respect to designated Roth contributions under section 403(b) plans by amending the proposed section 403(b) regulations issued in 2004 to reflect the provisions of section 402A.

What actions have pension consultants taken after the SEC’s release last year of its “Staff Report Concerning Examinations of Select Pension Consultants” as well as its “Tips for Plan Fiduciaries“? Lori Richards, Director, Office of Compliance Inspections and Examinations, for the SEC gave a speech December 5, 2005 (access it here) in which she provided some insight into how pension consultants have responded. Excerpt:

Since we issued our examination Report and the “Tips for Plan Fiduciaries” in May, we’ve sought to determine how pension consultants were reacting to the recommendations in the Report — we wanted to see what steps they had taken to address the conflicts of interest and the disclosure issues we had raised. We asked a number of the firms we had examined what steps they were taking in response to the Report.

In general, we found that most pension consulting firms we examined have taken positive steps to reevaluate, revise, and implement changes to their policies and procedures. . . .

Here’s what many pension consultants said that they were doing in light of our three recommendations, which were:

• To insulate the consultant’s advisory activities from its other business activities to eliminate or mitigate conflicts of interest;
• To disclose all conflicts of interest to prospective and existing clients to fulfill fiduciary duties; and
• To implement policies and procedures to prevent conflicts of interest or disclose material conflicts of interest, especially concerning brokerage, gifts, donations, contributions and other financial benefits.

Richards then goes through a laundry-list of specific actions pension consultants have taken in implementing these three goals. While the speech is preceded by the disclaimer that the “speaker’s views are her own, and do not necessarily reflect those of the Commission, the Commissioners, or other members of the staff,” it does provide some insight into what actions the SEC might deem acceptable in addressing the concerns in the Staff Report. Plan fiduciaries will likely find this information somewhat useful in selecting, monitoring, and evaluating the pension consultants who assist them.

For instance on the obligation of disclosing conflicts, here are some of the “positive” actions being taken by pension consultants that she listed in her speech:

• All consultants use Part II of Form ADV or a separate brochure to disclose conflicts of interest, and most strengthened their disclosures.
• In addition to Form ADV, several consultants also provide clients with a separate conflict of interest document that includes discussions about the consultant’s business relationships with money managers and how the consultant manages potential conflicts.
• A consultant provides specific disclosure to individual clients about conflicts it has with particular money managers it recommends to its clients.
• A consultant adopted new procedures under which advisory clients can request specific financial information related to the consultant’s business relationships with individual managers.
• Some consultants advised that they have distributed their own responses to the SEC Staff Report and the DOL/SEC “Tips” to individual clients.

In regards to the implementation of policies and procedures to prevent conflicts of interest, Richards gave the following advice to plan fiduciaries:

On a less encouraging note, it did not appear to us that all pension consultants had implemented policies governing the payment of their fees with directed brokerage. And, more than a handful of consultants failed to offer to provide a copy of the firm’s Code of Ethics to clients in Part II of Form ADV, as required. Plan trustees may find that reviewing a pension consultant’s Code of Ethics may help in answering some of the questions outlined in the SEC/DOL “Tips for Plan Fiduciaries.”

Read previous posts about the SEC/DOL focus on pension consultants here.

The Federation of American Scientists has published on its website the National Security Agency’s Redacting with Confidence: How to Safely Publish Sanitized Reports Converted From Word to PDF. The article points out that “merely converting an MS Word document to PDF does not remove all metadata automatically.” It also warns against relying on Word’s “Remove Hidden Data” feature.

(Hat Tip: Tax & Business Law Commentary.)

Remember the cartoons here and here posted by the TaxGuru not too long ago on the topic of “what a retirement plan is not”? A recent survey co-sponsored by the Consumer Federation of America (CFA) and the Financial Planning Association (FPA) reports:

A surprisingly high percentage of Americans think that the most practical way for them to accumulate several hundred thousand dollars is to win the lottery. When asked about the most practical way for them personally to accumulate several hundred thousand dollars, over half (55%) said “save something each month for many years.” Yet, more than one-fifth (21%) said “win the lottery,” and among the least affluent and those over 55 years of age, these percentages were much higher — 38% and 31% respectively. When asked about very important wealth-building strategies for all Americans, 16% said “win the lottery.” Those without high school degrees were much more likely to select this option than were those with college degrees — 30% vs. 8%.

The Tax Foundation is attempting to put that myth to rest in this article: “Lottery Taxes Divert Income from Retirement Savings“:

[A] person who spends $100 per month on the lottery—slightly less than the average resident of Rhode Island spends on the lottery (see Table 2)—over a forty-year period would be $144,000 richer if he instead invested that money. A lottery player who spends $50 per month—slightly less than the average resident of Massachusetts—would have an additional $72,201 if he instead invested his money, and the average New Yorker, who spends about $25 a month on the lottery, could be over $36,000 richer by retirement age if he instead invested in the stock market.

For the highest-spending lottery players, the difference is even more dramatic. A person who spends $300 a month on the lottery could instead earn nearly half a million dollars in the stock market—$433,208 more than he would win playing the lottery.

The article goes on to report that “there are five states where per capita annual lottery spending exceeds $500 (Rhode island, South Dakota, Delaware, West Virginia and Massachusetts).”

(I guess that is one more reason for Congress to pass the “automatic enrollment” legislation which both the House and the Senate have agreed to in different bills, i.e. take it out of the paycheck before it is spent on the lottery!)

(Hat Tip: TaxProf Blog)