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Health Care, Securities Class Action Bills Progress; Nothing Yet on Pension Vehicle....Uniform Law Commissioners Looking at Possible New Drafting Effort

By Cynthia L. Moore
Washington Counsel
National Council on Teacher Retirement

August 11, 1998

Budget surplus -- Happy days are here again (or are they?)

The budget surplus continues to confound Congress as it tries to deal with the wonderful new world of extra federal money. In the old days (1997 and before), the budget deficit provided few opportunities for Congress; no matter what their decision, it would be bad. Here are the previous options:

Bad Old Days Scenarios

• If Congress raised spending, they would increase the deficit.
  
  
• If they cut spending, they would anger certain constituencies.
  
  
• If they cut taxes, they would increase the deficit.
  
  
• If they raised taxes, they would commit political suicide.
  
  
• If they did nothing, they would be accused of being a "Do Nothing Congress."

Under the surplus, some of the choices, which follow, are more attractive.

Menu of Delicious New Choices

• Increase spending
  
  
• Cut taxes Menu of Less Delicious, But Worthy, New Choices
  
  
• Pay down the federal debt
  
  
• Shore up Social Security's financing

The conventional wisdom is that Republicans favor tax cuts while Democrats favor spending programs. (Obviously, exceptions exist to this rule.) With elections in November, the Republican-led Congress is eager to choose the tax cut option from the menu. Interfering with this plan is the President's call to use the surplus to save Social Security first. But the House leadership has crunched, re-crunched, and crunched again the numbers and figured out a way to squeeze out of the surplus not only $700 billion for Social Security, but an equal amount for a tax cut.

Senate Republicans have termed this House plan as "impracticable." Democrats in that body were more blunt in pointing out that the surplus to be used by the House leadership does not exist without using the assets in the Social Security Trust Fund. Senator Ernest Hollings (D SC), who is never reluctant to voice his opinion, says that Congress views the Social Security surplus as "a slush fund," not a trust fund.

Once the dust settles and cooler heads prevail, a more modest tax cut may still be seriously considered once Congress returns from recess. (This is an election year, remember.). The cut would be targeted to relief from the marriage tax penalty. Under this penalty, some couples would pay lower taxes if they "lived in sin" rather than getting married.

And why do we care about tax cuts? Because a tax cut bill could contain pension provisions, including the portability improvements that NCTR supports. A big cut like that supported by the House leadership might include pension provisions. But a big cut is not likely to go far in the Senate. A smaller effort, however, would likely not have room for pension changes. Stay tuned.

More Social Security Reform Ideas Circulating

The future of Social Security is getting a good airing in Washington these days. Here are some recent ideas.

Investment of Social Security Assets in the Equities Markets by the Federal Government. Rep. Earl Pomeroy (D-ND) is working on a bill to authorize the Social Security system to invest a portion of its trust fund in equities. He would specify an asset allocation of half equities, half fixed income. The investments would be made by an independent pension board with responsibility to hire outside money managers to invest the equity allocation in passive investments. The investments in equities would be phased in over a 15 year period. The board would ensure that equity investments are sufficiently diversified to allay concerns that the government won't seek to influence the governance of the companies in which it invests. The Congressman plans to introduce the bill after Congress returns from the August recess.

Opposition to Individual Accounts. Rep. Jerrold Nadler (D-NY) and 52 other members introduced a resolution (H. Res. 483) opposing individual accounts as a Social Security reform measure. Nadler also plans to sponsor legislation similar to Pomeroy's and propose other changes to shore up the system.

Convert Budget Surplus to Personal Retirement Accounts. Sen. Bill Roth (R-DE) has sponsored S. 2369 that would dedicate half of the projected budget surpluses over the next five years to the creation of personal retirement accounts. The bill would allow each person who earns the minimum of four quarters of Social Security coverage would be eligible for a deposit in a personal retirement account. Each eligible person would receive $250 per year in the account, plus an additional amount based on the individual's share of payroll taxes. The program and the three investment choices offered under it would be patterned after the Thrift Savings Plan, a 401(k)-type plan for federal employees.

Patients' Rights Bill Moves Forward in House

The House narrowly passed a patients' rights bill that will establish a set of protections for Americans in managed-care plans. As noted in the July 9 NCTR legislative report, a House Republican Task Force put forward the proposal as a response to rising concern about the operation of the health plans. Rep. Dennis Hastert (R-IL) led the task force.

The bill, passed on July 24, contains safeguards that would make it easier for patents to get emergency room bills paid, visit ob-gyn's and pediatricians, and appeal when they believe they have been improperly denied care.

Congress and the White House agree that the core policy goal is to try to make sure that people insured through HMO's can get what their health plans promise. The White House says, however, that the bill in its current form does not go far enough. It says that the bill fails to guarantee people with chronic illnesses can visit medical specialists and gives insurers, not doctors, the power to define what treatment is necessary.

On the Senate side, the issue is moving more slowly. Majority Leader Trent Lott has said he will schedule action before adjournment this Fall only if the Democrats agree to limit debate on the bill.

House Approves Securities Litigation Bill with Carve Out for Public Pension Plan Lawsuits

The House recently passed legislation (H.R. 1689) that will limit the conduct of securities class actions under State law by a vote of 340-83 (with one voting present). As with the Senate version (S. 1260), the bill contains an exception for lawsuits by state and local government pension plans. The Senate passed its bill on May 13. The measure is now awaiting action by a conference committee of the House and the Senate. See July 9 report for more details.

Good practices

An increasing number of states allow their retirement systems to accept rollovers. These rollovers are used by plan participants to purchase service credit. ÐThis represents money earned by the participants while working for a previous employer. Plan participants in the following NCTR member systems now have this opportunity: Colorado Public Employees' Retirement Association, the Indiana State Teachers' Retirement Fund, the Virginia Retirement System, and the North Dakota Teachers' Fund for Retirement.

Now legislation has passed a House committee that would permit a similar advantage for newly hired federal employees. Under H.R. 2526, these employees could rollover money into the Thrift Savings Fund, a type of 401(k). It would not be through a purchase of service credit, but a direct transfer. Accepting rollovers expands portability. It is good to see the federal government getting on the portability bandwagon for its own employees.

Tax Code Sunset Effort De-Railed in Senate

What federal law has been termed a three-headed monster in need of a decapitation? The Internal Revenue Code (IRC), of course, which is home to the pension qualification rules. As reported in the July 9 report, the House voted to eliminate the IRC by December 31, 2002. Senator Tim Hutchinson (R-AR) thought he'd give the idea a try in the Senate and proposed an amendment to S. 2312, the Treasury Appropriation, on July 28. The amendment was ruled out of order, thus stopping consideration of it.

Although the actual elimination of the IRC is unlikely, these efforts may signal future efforts to simplify it. Simplification could modify or eliminate tax preferences such as those that exist for pensions. Thus, we will watch these efforts closely.

Bill Numbers Now Available

The July 9 update reported on the introduction of several Senate bills that will enhance the pension portability for state and local government employees. At the time of the report, the bill numbers were not available. They have now been released and are provided here in case you would like to contact your congressional delegation to support them:

• S. 2339, the Retirement Security for the 21st Century Act by Senators Graham (D-FL), Grassley (R-IA), Jeffords (R-VT), and Baucus (D-MT)
  
  
• S. 2329, the Retirement Account Portability Act of 1998 by Senators Jeffords (R-VT), Bingaman (D-NM), and Graham (D-FL)

New Uniform Law Drafting Effort Possible

A possible new uniform law effort may be mounted. At last month's annual meeting of the National Conference of Commissioners on Uniform State Laws (NCCUSL), a study committee met to determine whether uniform laws should be drafted in the areas of:

• Spousal notice/consent issues: Notice/consent requirements to/of spouses of public plan participants who do not select joint and survivor options; spousal notice/consent with respect to pre-retirement death benefit options; and standardized rules for qualified domestic relations orders;
  
  
• Vesting rules;
  
  
• Portability, both purchase of service credit and reciprocity (that is, retirement system-to-retirement system transfer of pension money both within a state and among states); and
  
  
• Board composition, that is, specifying the types of individuals who must be represented on the board, including employee representatives.

NCCUSL drafted the Uniform Management of Public Employee Retirement Systems Act (UMPERSA), which is now being circulated among state legislatures for enactment.

The study committee will look at whether any or all of the possible topics meet the criteria of a uniform act. Such criteria include the following:

• Will the subject of the act produce significant benefits to the public through improvements in the law, for example, facilitating interstate economic, social, or political relations?
  
  
• Is there a reasonable probability that the act will be enacted by a substantial number of jurisdictions? The study committee will report its findings by February.

NCTR will monitor this activity as it did during the consideration of UMPERSA and would welcome any comments about the proposed topics.