Key Topic: Tax-favored treatment of employee benefits will bear some of the brunt from year-end fiscal crisis.
Key Takeaway: A solution to the crisis may require limiting the tax-favored treatment of defined benefit plan contributions.
By Florence Olsen
Policy observers gave a pessimistic assessment of fiscal policy May 7 by predicting a year-end fiscal “train wreck” that almost certainly will have an impact on employee benefit policy.
Whatever happens after the November presidential elections and lame-duck Congress that follows will determine whether favorable tax treatment of contributions to defined contribution plans will continue at current levels, Randy G. DeFrehn, executive director at the National Coordinating Committee for Multiemployer Plans, said at a conference sponsored by the International Foundation of Employee Benefit Plans.
On Dec. 1, 2010, the commission issued a blueprint for reducing the federal deficit by nearly $4 trillion through 2020; modifying Social Security; and simplifying the tax code by eliminating or trimming many tax-exclusions and deferrals, including those for health and welfare benefits and retirement plans (229 PBD, 12/2/10; 37 BPR 2617, 12/7/10).
Another idea that Congress will consider is whether to phase out the tax-favored treatment of employer-sponsored health benefits “by freezing current limits at the 75th percentile for family coverage for four years,” followed by phasing out tax breaks for health insurance coverage during the next 20 years, DeFrehn said.
“Those are elements that will be part of the debate and, as we go forward, have to be part of the solution,” DeFrehn said.
A major uncertainty for employers that offer employee benefits centers on what might happen if the Supreme Court strikes down the individual mandate portion of the 2010 health care reform law but not its guaranteed issue provision, DeFrehn said.
The law's guaranteed issue provision prohibits insurance companies from denying coverage to individuals on the basis of their health status.
“If you had guaranteed issue but not insurance, why would you buy insurance? The pieces are tied together,” he said.
A larger question is what the Supreme Court might do with the Patient Protection and Affordable Care Act (Pub. L. No. 111-148) if it strikes down the individual mandate, DeFrehn said. “Do they send it back to Congress, or does it die on the vine?”
“Sixty is the new 50,” Loveless said. Under Senate rules, more than a third of the votes taken during the past session required 60 votes, he said. “It's a sad statement,” he added.
Among its year-end fiscal challenges, Congress must again raise the debt ceiling, DeFrehn said. “Think about what we went through the last time we had to raise the debt ceiling. This is the train wreck that is coming,” he said.
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