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Rules/Regs: Republicans Rule–and Must Deliver PDF  | Print |  E-mail
Tuesday, 18 February 2003 19:27

Plan Sponsor  

February 2003  

Congressional docket includes a Medicare drug benefit, post-Enron pension reform, and accelerated 401(k) contribution limits

By Robert Stowe England

For the first time since the Congress of 1953-54—except for a brief five months in 2001—the presidency and both houses of Congress belong to the Republican Party.


Now, the Republicans must deliver. “Republicans are aware now they are going to be held accountable for making something happen,” says Paul Dennett, vice president of health policy at the American Benefits Council.


As 2003 begins, Washington’s attention is centered on the long-gestating tax-cut package that the Bush Administration hopes will recharge the economy. A potential war with Iraq is a wild card; yet, the White House will take a leading role in setting congressional priorities, most observers agree. “It is very significant that the day after the elections, [White House spokesperson] Ari Fleischer, when asked about the Republican agenda, mentioned pension reform and post-Enron legislation,” notes Jim Klein, president of the American Benefits Council.


While they lost their majority in the Senate, Democrats still will be able to shape legislation—especially where they have developed strong bipartisan relationships, such as on the Senate Finance Committee, now chaired by Sen. Charles Grassley (R-Iowa) instead of Sen. Max Baucus (D-Montana). For the most part, however, Democratic efforts “will be more in positioning themselves for 2004,” says Larry Sabato, professor of politics at the University of Virginia. Sean O’Brien, policy analyst for the AFL-CIO, tends to agree. “Realistically, you have to plan on a lot of defensive work,” he says.


Despite the Republican election victory, the biggest question mark hangs over revamping Social Security. “The chances for reform are greatly enhanced,” says Peter Ferrara, director of the International Center for Law and Economics, a conservative think-tank in Fairfax, Virginia. However, Ferrara does not expect legislation to be introduced this year or even next year, with its looming presidential election, despite the apparent inability of Democrats to stir voter ire on the issue in the 2000 campaign.


Evelyn Morton, senior legislative representative at the AARP, agrees the Republicans will not tackle Social Security this year: “Given the fact that the president already said something about making Medicare reform a priority, and a prescription drug package, that’s a lot of effort.” While Congress may hold hearings on individual accounts, it will not attempt to design major new legislation, she predicts.


Medicare Prescription


“[On Medicare,] the Administration is likely to coalesce around something that looks like the so-called ‘tripartisan proposal’ that emerged in the Senate last August,” the ABC’s Dennett predicts—a deal favored by Senator, and now Senate Majority Leader, Bill Frist (R-Tennessee), as well as John Breaux (D-Louisiana) and James Jeffords (I-Vermont).


The tripartisan proposal set forth a set of principles to guide Medicare prescription drug benefit legislation, including “guaranteed access” to an affordable prescription drug benefit. While beneficiaries would have the option to enroll for a prescription drug benefit, no one would have to give up current coverage. Drugs would be delivered through federally certified private-sector plans working together with the federal government. In areas where no private-sector plans were available, the federal government would work with federally certified pharmacy benefit managers. 


Democrats preferred their bill because it included lower co-pays and greater benefits and would give Medicare rather than private insurance companies the responsibility for providing the benefit. Of course, it had a price tag of nearly $600 billion, compared with $370 billion over10 years for the tripartisan compromise, and $160 billion for a GOP alternative, according to the Congressional Budget Office.


Last year, “the Medicare debate was a political stage show and no one could get 60 votes to proceed,” says Anthony Knettel, vice president of health affairs at the ERISA Industry Committee.


Central to the new Bush economic stimulus proposals is a bid to make permanent the tax cuts that Congress passed as the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), and Republicans in Congress are considered likely to move quickly on any proposal that would advance the timetable for increasing the qualified plan contribution limits as well.


Some Democrats, including Senator Jon Corzine (D-New Jersey), would like to see included in any stimulus package a one-month reduction in the payroll tax. Republicans may be willing to compromise on this point in return for Democrats’ agreeing to make EGTRRA permanent and possibly advance the timetable for tax cuts and contribution limit increases, according to both GOP and Democrat sources.


However, some advocates for low-income groups question the rush to support a payroll tax holiday. Robert Greenstein, executive director of the Center on Budget and Policy Priorities, and Peter Orszag, a senior fellow at the Brookings Institution, note that, while the proposal appears to be helpful for working people, half the benefit goes to business while the portion of the tax break directed at individuals would help higher-income workers more. A one-month holiday would cost $40 billion—an expensive package, they say in a new CBPP policy position paper.


A bipartisan compromise also may emerge on Enron-related pension reforms. At the AFL-CIO, O’Brien expects the Republicans will quickly and easily obtain a compromise between a pension reform bill that passed out of the Democratic-controlled Senate Finance Committee and the bill the House passed last year. The Senate Health, Education, Labor & Pensions Committee, under Senator Ted Kennedy (D-Massachusetts), reported out a third bill last August, but HELP and Finance could not reach an agreement on compromise legislation to send to the Senate floor. The Kennedy bill would have limited investments in company stock as either an employee option or a match—but not both.


The expected give-and-take between these bills could open the door for some unexpected moves going forward. However, the urgency for Enron-type legislation in the Congress may have cooled, O’Brien suggests. A spokesperson for the House Committee on Education and the Workforce says the chamber will move quickly to pass the same legislation it passed last year and remains hopeful that the Republican Senate will follow, and Congress can deliver the president a bill to sign into law.


Advice Revisited


To get a post-Enron bill out of Congress, lawmakers still will have to resolve a dispute over participant investment advice. Senator Judd Gregg (R-New Hampshire) at HELP is not sympathetic, while Grassley at Finance favors an advice bill sponsored by Senator Jeff Bingaman (D-New Mexico). The Bingaman proposal would create a to-do list for plan sponsors that want to make an investment advisor’s services available to participants in order to avoid liability as fiduciaries. Both HELP and Finance adopted the Bingaman proposal in their Enron legislation, but the two sides could not reach agreement on other issues, such as limits on employer stock.


A bill sponsored by Representative John Boehner (R-Ohio), passed by the House and embraced by the Bush Administration last year, would allow providers of investment products to provide advice for a fee, subject to disclosures.


Neither side blinked last year but, with one party now in control of both houses, the burden of effecting a compromise will fall on Boehner and Bingaman. “We all feel certain there is a compromise that can be reached. It might mean putting Bingaman and Boehner in a room until they work it out,” one Capitol Hill source jokes.


A push also is expected to hold hearings for legislation to make defined benefit plans more appealing to employers, a long-time concern of Gregg’s. Hearings at HELP likely will focus on the question of whether Congress has overburdened defined benefit plans with too many regulations and will look for ways to improve cash balance plans, sources say. On the House side, the Committee on Education and the Workforce is likely to look again at how to encourage small businesses to offer health-care insurance to some of the 41 million individuals without it.


Meanwhile, many plan sponsors will be hoping Congress can find a permanent replacement for the 30-year Treasury for calculating corporations’ pension liabilities as well as lump-sum payments. The low 30-year rate, combined with lower stock prices, has pushed many plans into underfunded status. Congress adopted a temporary proposal last year allowing plan sponsors to use an interest rate somewhere between 90% and 120% of the 30-year Treasury rate. Under the old standard, the range was narrower, 90% to 105%. The American Association of Pension Actuaries has called for a benchmark to replace the Treasury, including, possibly, the AA corporate bond rate.

Reemerging Proposals


Also likely to reemerge is a new set of proposals from Representative Rob Portman (R-Ohio) and Representative Bill Cardin (D-Maryland), authors of the revised 401(k) and IRA rules that eventually became part of EGTRRA. A short version of the so-called Portman-Cardin II, introduced in October, would accelerate the timetable for increased contribution limits and also extend from 70-and-a-half to 75 years the initial date by which a plan participant must begin withdrawals from a 401(k) or other retirement savings account. 


Portman and Cardin are likely to expand the list of provisions in legislation introduced this year, says Janice Gregory, vice president at the ERISA Industry Committee, but what items might appear are still anybody’s guess.


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