<nobr>Sep 25, 2008</nobr>

ERIC Testifies in Opposition to Tierney Retiree Health Legislation

Says Legislation Would Have Significant Unintended Adverse Consequences

Washington, D.C. -- Scott Macey, Senior Vice President and Director of Government Affairs of Aon Consulting, testified today on behalf of The ERISA Industry Committee (ERIC), a Washington, D.C.-based trade association representing America's major employers, at a hearing before the House Education and Labor Committee on options to safeguard retiree health benefits.

Macey commended the Committee for its attention to retiree health benefits, but cautioned that major employers do not support legislation that would prevent employers from modifying benefits in the face of escalating costs or retroactively vest employees in retiree health benefits that had been put in place many years ago. Macey said that the Emergency Retiree Health Benefits Protection Act (H.R. 1322) introduced by Congressman John Tierney (D-MA) would impose prohibitively strict and retroactive mandates on those employers that offer, or in the past offered, retiree health benefits. In effect, employers that had never offered benefits would be better off than those that did.

Macey said that, "If the bill is enacted, the unintended consequence will be a dramatic decline in the number of employers that are able to provide post-retirement benefits to their employees. Few companies will risk offering retiree health benefits if they are confined in the legal straitjacket that the bill would impose."

Dale Yamamoto of Red Quill Consulting, an ERIC member, outlined key aspects of retiree health care, including the prevalence of benefits, key design features, the types of changes employers have made, information on prefunding and national costs, and how we got to where we are today with regard to retiree health benefits. Yamamoto testified that key reasons for the declining percentage of employers offering retiree health benefits can be traced to rapidly increasing health care costs, tax legislation that restricted the ability of a plan sponsor to prefund retiree benefits, and to the Financial Accounting Standards Board adopting accounting rules that require advanced accounting of the benefit, similar to pension plans.

Macey urged the committee to consider that:

1) If an employer promises lifetime health benefits to its retirees, that commitment is well protected under current law.
2) If an employer has lawfully reserved the right to change retiree benefits and employees have been informed of that right, that legal right should also be protected.
3) If employers are prohibited from changing the benefits in place when a worker retires, many employers will eliminate the benefit altogether depriving millions of future retirees of employer-provided health benefits.
4) Proposals that would lock-in companies' retiree health benefits fail to address the underlying reasons that cause companies to reduce or eliminate these benefits in the first place, and do not address the underlying problem of inadequate individual access to affordable health care in our society.

"In short, the bill would re-write private benefit plans retroactively in order to convert an employer's voluntary, conditional decision to offer post-retirement health benefits into an unconditional lifetime guarantee. Employers that have been less generous, and have provided no post-retirement benefits to their employees, would be rewarded with a decades-long competitive advantage," Macey testified.

Macey added that, "Employers that provide comprehensive health benefits today are under severe stress. They must contend with excessive medical cost increases, complex and inflexible rules governing benefits, burdensome and often unnecessary litigation, shifting accounting standards, inadequate funding mechanisms, and federal and state mandates that constantly impose new obligations on a system that is already terribly overburdened."

He concluded by urging the Committee to look at ERIC's "New Benefit Platform for Life Security," a framework for retaining employer participation in the benefit system and providing access for small employers, as well as individuals, in a 21st century life security plan for delivering high quality retirement and health coverage to all Americans.

Copies of Mr. Macey's and Mr. Yamamoto's testimony, along with the other witnesses' testimony and H.R. 1322 are below.

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For more information:

Ted Godbout
Manager, Communications
The ERISA Industry Committee
1400 L Street, NW, Suite 350
Washington, DC 20005
Phone: (202)789-1400
Fax: (202)789-1120
E-mail: tgodbout@eric.org
www.eric.org

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The ERISA Industry Committee (ERIC) is a non-profit association committed to representing the advancement of the employee retirement, health, and compensation plans of America's largest employers. ERIC's members provide benchmark retirement, health care coverage, compensation, and other economic security benefits directly to tens of millions of active and retired workers and their families. ERIC has a strong interest in proposals affecting its members' ability to deliver those benefits, their cost and their effectiveness, as well as the role of those benefits in the American economy.


Text Files:

Scott Macey's Testimony

Dale Yamamoto's Testimony
Websites:

Other Witness Testimony

H.R. 1322

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