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The Fiscal Cliff, The Taxation of Health Insurance, and The Retirement Crisis

Now that the election dust has settled, much of the news is about the looming fiscal cliff (as discussed on our sister blog, As most of us recall, this is not a new issue, but one that our elected leaders have created for us. (This Forbes op-ed has a pretty good explanation, including mentioning the tax increases we’ve blogged about previously.)

In 2010, the National Commission on Fiscal Responsibility (commonly known as the Simpson-Bowles Commission) issued its report on how to solve the fiscal crisis. Among the features of its comprehensive plan were 2 benefits related items. Given that a combination of a lame duck Congress and a second term President are likely to address the fiscal cliff in some fashion, it is worth revisiting the report and these two items, as they will probably factor in the discussion.

One benefits item was capping the tax exclusion for employer-provided health insurance at 75% of the 2014 cost until 2018, with a gradual phase out of the cap lasting until 2038.  (The report also suggests reducing the PPACA “Cadillac Tax” from 40% down to 12%.)  While capping the tax exclusion for health insurance (the largest of the so-called “expenditures”) would be unpopular, our guess is that it would probably not have a great impact on the availability of employer-provided insurance. The availability of the health care reform

ERISA 4062(e)asier?

ERISA 4062(e)asier?

November 7, 2012

Authored by: Chris Rylands

Last Friday, the Pension Benefit Guaranty Corporation officially announced a change in enforcement under ERISA § 4062(e) that had been encountered some time ago by practitioners.  This is the “Third Act” in the unfolding saga of 4062(e) enforcement.

In broad terms, 4062(e) gives the PBGC the authority to seek protection for a defined benefit pension plan by forcing an employer to fund, or post security to fund, a pension plan if there is a substantial cessation of operations at one or more facilities covered by the plan.  Essentially, if there was a 20% or greater reduction in headcount at a facility, the PBGC could force the employer to fund the pension plan with respect to the terminated employees.   This provision has been in the law since 1974, but was rarely enforced until the mid-2000s. The thinking was that by forcing employers to fund their plans in these situations, it would reduce the likelihood that the plan would be turned over to the PBGC or would ease the burden on the cash-strapped PBGC (which is funded only by premiums from companies that sponsor pensions) if it did eventually get turned over.  When the PBGC began enforcing it in earnest it would, in most cases, negotiate with sponsors to either put money in escrow, post a bond, get a letter of credit, or make an additional contribution to the plan.

Private Health Insurance Exchanges: Look Before You Leap

Private Health Insurance Exchanges: Look Before You Leap

October 25, 2012

Authored by: benefitsbclp

Update December 12, 2012: See today’s post on this issue that provides additional insight.

In the wake of the Affordable Care Act’s public exchanges, large private employers and benefit consultants have been working on establishing private health insurance exchanges, which would permit employees of participating employers to purchase health insurance from a broader array of alternatives than are available under a single employer plan.  Generally, private exchanges are being marketed to large employers, many of whom self-insure, as a way to manage their health care costs through a defined contribution-style health program.  It is expected that the private exchange will have multiple levels of individual health insurance coverage provided by several different insurers, in contrast to employer plans, where there may be only one or two levels of coverage.

An employer who provides health coverage through a private exchange gives each employee sum of money, through a health reimbursement account, pre-tax through cafeteria plan, or post-tax, to pay the employee’s share of the premium.  Each employee selects health coverage from the options available through the exchange.  The employer’s expectation is that providing health insurance through a private exchange will limit the employer’s cost and give the employees more choice and more control over their health insurance and care.  Aon Hewitt has set up a private exchange and it has been reported that Sears and Darden Restaurants  expect to provide their employees with health insurance through a private exchange for the 2013 plan

408(b)(2) Ruminations from the Field

408(b)(2) Ruminations from the Field

October 17, 2012

Authored by: benefitsbclp

The regulations mandating that covered service providers disclose information, particularly fee information, required that the first “explosion” of the disclosure information occur by July 1, 2012. Prior to July 1, 2012, we provided lots of information about the disclosure requirements in an effort to assist the fiduciaries in avoiding a prohibited transaction (including some prior blog posts). After July 1, 2012, we followed up and asked if there were questions or if we could assist in any fashion. We have now had three months to take a look at what happened as a result of this first round of plan level fee disclosure and discuss the effort with other advisors. Looking primarily at defined contribution plans, and particularly 401(k) plans and ESOPs, we culled some anecdotal information, and from it, there appear to be a number of pretty consistent patterns and results.


  • Diligent fiduciaries who commonly utilize the services of independent investment advisors engaged the advisors to assist them in reviewing, understanding and acting on the disclosures.
  • These fiduciaries, where advisors are retained, identified the plan’s covered service providers and confirmed that all of them provided disclosures or, where something was missing or incomplete, followed the rules to obtain the disclosures.
  • These same fiduciaries, with the assistance of advisors, reviewed the disclosures and many have taken steps to work with the advisor to determine reasonableness of fees and necessity of services. Some have done comparisons by benchmarking plan fees to assist in determining reasonableness. Some

The True Cost of Paying Instead of Playing

The True Cost of Paying Instead of Playing

August 2, 2012

Authored by: benefitsbclp

A recent study by Truven Health Analytics attempts to model the employer and employee cost impact of various strategies for dealing with PPACA’s “play or pay” employer mandates/penalties.  The study is notable primarily for two reasons. First, it attempts to take into account the employee, as well as the employer, cost associated with each strategy.

The report essentially concludes that any cost savings an employer may receive will result in a precipitous increase in costs to employees.  In effect, Truven is saying that the balance between employer and employee is a zero-sum game (or nearly so): there is no way for an employer to save money that does not result in a precipitous increase in employees’ cost.  Furthermore, if an employer attempts to make employees whole for the cost, then it will actually end up costing the employer more than providing health coverage, Truven concludes.

Perhaps more importantly, however, it looks beyond the penalties and costs of health coverage in attempting to quantify the employer cost and also attempts to quantify both the impact on an employer’s other programs (such as workers compensation and short- and long-term disability) and the impact on employee productivity (such as through increased absenteeism).  The report is a good summary, but is short on details on how the researchers determine the costs of these collateral impacts.

Even so, it is worth considering whether, and how, the lack of employer control over health insurance could have an impact in these collateral areas. 

California’s Public Effort to Expand Private Sector Retirement

It’s hardly news that private sector employees’ retirement accounts took a serious hit in the 2008 financial crisis. In addition, availability of retirement plans in the workplace has declined and small employers have opted not to participate in the private pension system to a greater extent than large employers.  To California’s credit, the state’s government is trying to do something about this, but will it work?

Background – California’s Proposed Solution California’s Legislature is currently considering the California Secure Choice Retirement Savings Act, which would create a public retirement savings plan for private sector workers who do not have access to employer-sponsored retirement savings plans.  Employees would have to contribute (3% in the first year) unless they opt out and employers would be allowed to contribute.  The plan, including contribution limits, would be modeled after an IRA with interest tied to 30-year Treasuries.  All employers (with 5+ employees) that do not already offer a retirement savings plan would be required to arrange for their employees’ participation, but employers’ day-to-day involvement is intended to be minimal.

Hurdle 1 – Would the plan be preempted by ERISA?  ERISA generally preempts state laws that “relate to” private sector employee retirement or welfare plans which makes California’s efforts in this area problematic. Is California’s plan a “plan” under ERISA, or merely a payroll practice?  Will the plan be “sponsored” by the private employers in the manner that an ERISA plan is “sponsored”?

Certainly, proponents of the California plan have taken steps to

AHIPocryte? Maybe, maybe not.

AHIPocryte? Maybe, maybe not.

June 27, 2012

Authored by: benefitsbclp

Rick Ungar’s recent article in Forbes highlighted what he called “the ultimate in duplicitous behavior” by the insurance trade group, America’s Health Insurance Plans (AHIP). According to Ungar, it seems AHIP was spending $102M to defeat PPACA while simultaneously publicly supporting it (see also here for the article Ungar cites).

I have three thoughts about this: (1) I do not support duplicitous behavior; (2) I also do not think we should be surprised by it; (3) I’m not sure this is exactly as duplicitous as it appears.

First, look at this statement by AHIP president from March 18, 2010  It was issued 5 days before the first of two health reform bills was signed and it’s not exactly the equivalent of gushing PPACA fan fiction.  And lest you think that this was a last minute change in position, here and here are two more press releases from December 2009 that make substantially the same point: AHIP says, in effect, “we support universal coverage” (no surprise there) ”, but in our view this legislation doesn’t address cost issues.”     It suggests that perhaps the level of duplicity is not quite as severe as might otherwise be suggested.

That AHIP came to the table to try and influence the law is no surprise and the mere fact of AHIP representatives showing up to be in the room for talks about the law does not mean they were unreservedly waiving pom-poms in support

What Does Growing Wheat Have to do with Health Reform?

What Does Growing Wheat Have to do with Health Reform?

October 5, 2011

Authored by: benefitsbclp

I get a lot of clients, family members, friends, acquaintances, and random strangers who find out I’m a lawyer asking me what I think is going to happen to the health reform law when the lower court decisions are reviewed by the Supreme Court. Fortunately, unlike the various real estate, estate planning, or tort questions I get asked (mostly by family), this is a subject that I actually know a little about.(1) I am not a Constitutional Law expert, but it was one of my favorite classes in law school.

My personal opinion is that I do not think it or any part of it will be struck down. Others disagree, but they are forgetting that health reform has everything to do with growing wheat.(2)

Back in the 1930’s, FDR kept pushing New Deal reforms through Congress. When the laws were challenged before the Supreme Court, the Supreme Court struck many of them down on the grounds that Congress did not have the authority to enact such laws. FDR threatened to increase the size of the Supreme Court(3) and nominate friendly justices who would uphold the reforms and magically we received Wickard v. Filburn.(4)

In Wickard, an Ohio farmer, Roscoe Filburn, was challenging part of the Agriculture Adjustment Act of 1938.(5) The Act purported to regulate how much of Roscoe’s farm could be devoted to wheat production. Roscoe planted and harvested significantly more than he was allotted under the Act. He argued that the additional wheat was for his personal

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