The Hon. Tommy Thompson, former Secretary of Health and Human Services, will address ERIC’s cost cutting forum June 22. Thompson, now a partner at Akin Gump Strauss Hauer & Feld LLP and the independent chair of the Deloitte Center for Health Care Management and Transformation, also served as governor of Wisconsin.

The one-day symposium, which is free to ERIC invitees, will feature discussion sessions geared towards developing a health care advocacy agenda to reduce the cost of health care and coverage. The program is designed to lead the development of a "take away" health agenda for attendees and for ERIC.

Sessions include:

• The Potential for Cost Savings: Benefits and Pitfalls;
• Steps employers can take to empower consumers to make responsible healthcare choices;
• Doing “The Right Thing”: The employer’s role in promoting lifestyle, health and disease management;
• The “Right-to-Know”: The promise of pay-for-performance health care programs; and
• Use of health information technology to control costs.

• House and Senate health policy experts;
• Corporate representatives from Deere & Company, IBM Corporation and other innovative large employers; and
• Policy analysts from the Employee Benefits Research Institute, the American Enterprise Institute and the Cornell University Institute for Health and Productivity.

ERIC, on April 18, wrote leaders of the House Ways and Means and Senate Finance committees to support technical corrections that would fix the unintentional problems created by the uniform definition of child contained in the Working Families Tax Relief Act of 2004.

Specifically, ERIC is looking for changes that would end the exclusion of some dependents, including elderly parents, from family Health Savings Accounts, 401(h) retiree health plans, 401(k) plans and dependent care accounts.

“Under the assumption that the technical corrections would move through the House of Representatives and Senate without delay or obstruction, America’s major employers have been acting on good faith and have not made costly changes in coverage, benefits and administrative practices,” ERIC President Mark Ugoretz said in an April 18 letter.

ERIC will be working with House and Senate staff to ensure the inclusion of the needed changes in technical corrections legislation. Such provisions received strong congressional support last year and were included in a technical corrections proposal that expired at the end of the last Congress.

Members of the House Education and the Workforce Subcommittee on Employer-Employee Relations, at an April 28 hearing, indicated concerns regarding a district court’s recent decision to bar the Equal Employment Opportunity Commission (EEOC) from issuing regulations allowing employers to coordinate retiree health benefits with Medicare.

Subcommittee Chairman Sam Johnson (R-TX), referring to a related decision issued in 2000 -- the first in a series leading up to Judge Anita Brody’s ruling March 30 -- said the earlier ruling “prompted serious concerns from many of us in this room, who feared it would encourage employers to reduce or drop their coverage altogether for their retirees who were under age 65 rather than enrich coverage for retirees aged 65 and older.

“Sadly,” Johnson continued, “that is exactly what happened…”

But Johnson said he was awaiting a decision by the Justice Department -- about whether it would appeal the March 30th ruling -- before contemplating a legislative fix to the coordination of benefits issue.

“With rising costs, common sense says we should make it easier – not harder – for employers to offer retiree health benefits,” he said.

Meanwhile, ERIC President Mark Ugoretz sent a letter to Johnson and Robert Andrews (D-NJ) in support of the derailed EEOC policy.

“Without the EEOC rule becoming final, well meaning employers will be subject to lawsuits under the ADEA, Ugoretz wrote.

The Medicare Payment Advisory Commission, April 21, recommended that Congress do away with the $10 billion stabilization fund it set aside earlier for regional preferred provider organizations (PPOs).

The recommendation would generate no savings until 2007 -- when it is scheduled to begin making payments to attract and retain PPOs. But the panel predicts estimated savings between $1 billion and $5 billion over the following five years.

MedPAC members also unanimously approved other draft recommendations that would lower spending on Medicare PPOs and HMOs compared to provisions in current law. These included:

• Establishment, by Congress, of benchmarks to evaluate Medicare Advantage plan bids at 100 percent of fee-for-service costs;
• A redirecting, by Congress, of Medicare’s share of savings from bids below the benchmark to a fund that would redistribute the savings back to MA plans based on quality measurements;
• Calculation by the Department of Health and Human Services of performance measurements that would permit comparisons between fee-for-service and MA plans.

Throughout the year, The Centers for Medicaid and Medicare Services (CMS) will be informing its beneficiaries about the upcoming Medicare Prescription Drug Coverage.

On April 28, the agency announced to stakeholders the “current key messages” it will be communicating about Medicare Prescription Drug Coverage.

They include:

• The drug coverage helps you pay for the prescriptions you need.
• It is available to all people with Medicare.
• There is additional help for those who need it most.
• Medicare prescription drug coverage pays for brand name and generic drugs.
• You can choose between at least two Medicare prescription drug plans and pick a plan that is right for you.
• Enroll now to pay lower premiums.
• Enroll soon before the enrollment period ends.

• Medicare is working with employers and unions to help you keep the coverage you have.
• Check with your former employer/union about your prescription drug coverage options.
• If you have insurance through a current or former employer, you will get notice from the employer/union telling you about your options.

The House and Senate, on April 28, passed a $2.56 trillion budget resolution that includes $6.6 billion over the next five years attributable to higher premiums paid by employers to the Pension Benefit Guaranty Corporation (PBGC). The $6.6 billion figure represents a partial victory for ERIC and other employers who had fought against an $18.1 billion figure proposed by the House budget committee.

The premium increase constitutes about one-sixth of the $35 billion Congress ear-marked for spending reductions over the next five years.

Congress had failed to adopt a budget for two of the last three years and lawmakers were under tremendous pressure to reach agreement in this go-round. The $2.56 trillion spending plan (H.Con. Res. 95) passed the House by 214-211 and the Senate by 52-47.

The $6.6 billion is part of the "reconciliation" instructions included in the budget that order certain committees to approve specific budget savings before year-end. Congress has not been through a budget reconciliation process that reduces mandatory spending items such as Medicaid since 1997.

The $6.6 billion in assumed PBGC premium increases is significantly lower than the $18.1 billion assumed in the House budget resolution -- but is higher than the $5.3 billion included in the Senate budget resolution. Moreover, the entire $6.6 billion in savings is allocated to the Senate Health, Education, Labor and Pensions Committee (HELP). In the earlier Senate resolution, the HELP Committee had been assigned $2 billion and an additional $3.3 billion had been shared with the Senate Finance Committee. This development is likely to present significant procedural problems for the Senate Committees' handling of pension reform legislation because the amount of premiums collected will be affected by legislation under the Finance Committee’s jurisdiction.

ERIC and other employer groups lobbied hard to remove PBGC premium increases from the budget reconciliation instructions. ERIC contends that it is inappropriate to increase the premiums purely for budget savings.

ERIC, on April 28, submitted detailed comments to the Treasury Department and the Internal Revenue Service on the proposed amendments to the regulations relating to disclosure of relative value of optional forms of benefit. The proposal was announced in the Federal Register January 28, 2005.

The relative value regulations are intended by Treasury to assure that, before plan participants elect the form in which they will receive their benefits under a pension plan, they receive a meaningful comparison of the relative economic values of the plan’s optional forms of benefit such as a single life annuity, a joint and survivor annuity, and a lump sum).

ERIC’s comments reflect members’ strong concerns about several aspects of both the proposed amendments to the regulations and the regulations themselves. Among them:

• Numerous optional forms of benefit: ERIC pointed out that some employers, including one of ERIC’s members maintains a plan with over 40 benefit options. Others maintain plans with countless joint and survivor annuity options.
• Numerous sets of actuarial assumptions: Plans must use statutory assumptions for lump-sum distributions, but they generally use different assumptions for other benefit options and often use alternative sets of assumptions for many options (applying whichever set of assumptions yields the greatest benefit for the participant).
• Bifurcated benefit options: Under some plans, one portion of a participant’s accrued benefit (for example, the benefit accrued before a specified date) is subject to one array of benefit options, while another portion of the participant’s accrued benefit (the portion accrued on or after the specified date) is subject to a different array of options.
• Combined benefit options: Some plans allow participants to combine alternative benefit options. For example, some plans allow a participant to elect a joint and survivor option either with or without a certain term or social security level-income feature. Other plans allow a participant to receive only part of the participant’s benefit in a lump sum and require the remainder to be received as an annuity.
• Complex options: Some plans offer joint and survivor annuities either with or without a “pop-up” feature (under which the benefit amount “pops up” if the survivor annuitant predeceases the participant). Some plans offer early retirement supplements that, in some cases, affect the optional forms of distribution that are available under the plan.

• That IRC Code Sec. 417(3) does not apply to social security level-income options;
• The need to address the expansion of certain distribution options in a separate ruling;
• Rules regarding retroactive annuities; and
• The meaning of “all options.”

ERIC, on April 26, joined with other business groups in testifying before the Senate Committee on Health, Education, Labor and Pensions Subcommittee on Retirement Security and Aging legislators for pension reforms.

On behalf of ERIC and the National Association of Manufacturers, the American Benefits Council, the Business Roundtable and the U.S. Chamber of Commerce, Sallie Ballantine Bailey, Senior Vice President (Finance) and Controller for The Timken Company, presented the Subcommittee with five key proposals that would improve retirement security. These recommendations included:

• Making the long-term corporate bond rate permanent.
• Eliminating barriers that prevent employers from making contributions to their plans during favorable economic times
• Adjusting credit balances for real market returns.
• Providing full and fair disclosure to pension plan participants without creating undue administrative burdens or unnecessary concerns among participants.
• Confirming the legality of hybrid plan designs.

The testimony also outlined concerns with the Administration’s pension reform proposals similar to those in ERIC’s previous testimony to other committees.

The hearing also featured Ian MacFarlane of Medley Global Advisors, who explained to the subcommittee the impact on British pension plans of accounting rules that required spot interest rates and eliminated smoothing of assets, as well as Ron Gebhardtsbauer of the American Academy of Actuaries and Alan Reuther of the United Auto Workers. Both raised issues with aspects of the Administration’s pension reform proposals.

ERIC staff met with tax counsel for Senator Jeff Bingaman (D-NM) last week to discuss the Senator’s newly introduced automatic enrollment legislation. The bill, entitled the Save More for Retirement Act of 2005 (S. 875), is designed to encourage employers to implement design-based automatic enrollment features in the defined contribution plans.

The Bingaman bill provides that a plan will be deemed to meet certain nondiscrimination testing requirements if it constitutes an “automatic contribution trust” (ACT). In order to be an ACT, arrangement must provide for a default deferral contribution percentage of at least 3%, with annual increases up to 10%. The plan must also provide for matching employer contributions of 50% of nonhighly compensated employee’s (NHCE) elective contributions up to 7%, or a 3% nonelective contribution to all NHCEs. Employers can meet the contribution requirements by making the contribution to another qualified plan sponsored by the employer, including a defined benefit plan.

ERIC held a member conference call April 21 to discuss automatic enrollment legislation, and is currently preparing a one pager and position statement on the issue.

Rep. Rahm Emanuel (D-Ill.) was the first to weigh in on auto enrollment this year, introducing H.R. 1508 on April 6. His bill requires that employees have the opportunity to opt out at any time and receive cash.

Emauel’s bill also would prohibit a deferral contribution from being invested in certain investment vehicles unless the employee affirmatively elects to do so.

Meanwhile, ERIC members already have expressed priorities for any auto enrollment bill. They include:

• Protections for employers from fiduciary liability under ERISA § 404(c).
• Optional provisions allowing plans with automatic enrollment to provide for automatic increases in employee contribution rates.
• Regulations or legislation governing automatic enrollment that apply to all § 401(k) plans, and not just to safe harbor plans.
• The same participation, coverage, and vesting requirements that apply to other plans, but no new or additional participation, coverage, or vesting requirements.

Two House lawmakers who have been leaders in pension reform legislation for the past several years introduced, bills on April 28 aimed at strengthening retirement plans While the bills’ sponsors, Reps. Rob Portman (R-OH) and Ben Cardin (D-MD), in the past have successfully co-sponsored pension reform legislation and seen many of their provisions enacted into law, this time they introduced separate bills (H.R. 1960 and 1961) just as each are pursuing new careers.

Cardin has announced his intention to run for a Senate seat and Portman was confirmed as U.S. Trade Representative within hours of introducing his bill.

Despite the popularity of hybrid plans with many employers, outstanding legal issues may undermine their viability as a retirement plan option, according to a new Republican Policy Committee report.

Unless the legal questions are resolved, the April 25 paper warns, “the uncertainty surrounding hybrid pensions puts millions of Americans’ retirement income at risk and threatens to force more companies to eliminate defined-benefit plans – a result that does not serve anyone.”

Meanwhile, ERIC has learned from congressional staff that House Education and Workforce Chairman John Boehner (R-OH) is on track to introduce a pension funding and hybrid plan bill soon that will validate hybrid plan designs and include provision related to conversions. Other likely provisions are:

• A modified version of the long-term ERISA funding rules;
• Some averaging of the short-term funding interest rate, as well as smoothing of assets;
• A modified yield curve;
• Restrictions on uses of credit balances;
• A higher liability calculation for chronically underperforming companies;
• Restrictions on benefit increases and payouts under certain circumstances; and
• Increases in PBGC premiums.

President Bush, on April 20, signed into law the Bankruptcy Abuse Prevention and Consumer Protection Act, Public Law 109-8.

As reported in the EER earlier, the lengthy bill includes a number of pension-related provisions. Among them:

• Sec. 224: An exemption for retirement funds in a qualified plan account. Under the House-Senate bill, an exempt fund does not lose that status by reason of a direct transfer or eligible rollover -- so long as the funds came from a qualified plan account and are deposited in such a fund within 60 days from distribution. The bill also provides that a chapter 13 plan may not materially alter the terms of a qualified retirement account loan and any amounts required to repay such a loan shall not constitute disposable income under 11 U.S.C. § 1325.
• Sec. 323 - An exclusion from the estate of amounts withheld or received by an employer from an employee’s wages payments that are contributions to qualified ERISA plans or health plans regulated by state law. Amounts withheld are not to be included in disposable income as defined by 11 U.S.C. § 1325(b)(2).
• Sec. 446 - A requirement, in a case under any chapter, that the debtor or trustee continue to perform the obligations required of an employee benefit plan administrator, if the debtor had done so prior to the filing of the petition.
• Sec. 1403 - A provision that prohibits a debtor from modifying retiree benefits within 180 days prior to filing bankruptcy if the debtor was insolvent at the time.
• Sec. 331 - Limitations on the ability of companies in bankruptcy to pay executive bonuses.