Guest Article

(From the October 6, 2008 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

Economic Stabilization Bill Could Affect Pensions; Includes Enhanced Mental Health Parity Rules

At a pace that might fairly be described as breathtaking by normal legislative standards, the U.S. Congress last week passed -- and President Bush signed -- legislation (the "Emergency Economic Stabilization Act of 2008") that establishes a mechanism by which the Secretary of the Treasury can ultimately spend as much as $700 billion to purchase "troubled assets" from "financial institutions." The bill also includes enhanced mental health parity requirements for group health plans and other provisions that might be of interest to employers from a compensation and benefits perspective. This article highlights but a few relevant features of the Emergency Economic Stabilization Act ("EESA"). Watch Washington Bulletin for additional insights as more information becomes available.

Could Pensions Sell "Troubled Assets" to Treasury?

Some are wondering if the EESA will permit Treasury to buy these "troubled assets" from pension plans. The bill's text suggests that may be a possibility, but it is far from certain. More guidance from Treasury will be needed.

Specifically, the EESA authorizes the Treasury Secretary to establish the Troubled Asset Relief Program (TARP) "to purchase, and to make and fund commitments to purchase, troubled assets from any financial institution." The term "troubled assets" generally includes "residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages" originated or issued on or before March 14, 2008. A financial institution is "any institution, including, but not limited to, any bank, savings association, credit union, security broker or dealer, or insurance company, established and regulated under the laws of the United States or any State ...."

The definition of "financial institution" arguably is broad enough to include pension plans. This argument is bolstered by other provisions of the bill. For example, the bill specifically requires the Treasury Secretary to take into consideration certain factors when exercising powers granted by the bill. The enumerated factors include "providing stability and preventing disruption to financial markets in order to limit the impact on the economy and protect American jobs, savings, and retirement security," and "protecting the retirement security of Americans by purchasing troubled assets held by or on behalf of an eligible retirement plan ..., except that such authority shall not extend to any" IRC § 409A nonqualified deferred compensation arrangements.

However, it is not clear how certain rules would apply if the Treasury Secretary did use TARP to purchase "troubled assets" from a pension plan. These include restrictions on executive compensation arrangements for financial institutions that sell troubled assets to Treasury, and requirements for the Treasury Secretary to receive an equity interest in the financial institutions that sell it troubled assets.

Finally, even if the Treasury Secretary decides the EESA gives it the authority to buy troubled assets from pension plans, he may choose not to exercise that authority. Under the EESA's terms, mortgages and mortgage-backed securities are "troubled assets" only if the Treasury Secretary determines that purchasing them "promotes financial market stability." So the Treasury Secretary could decide otherwise eligible assets held by pension plans are not "troubled assets" because buying them would not satisfy these criteria.

Enhanced Mental Health Parity Rules

Congressional leaders reached a compromise on enhanced mental health parity legislation during the summer, but its chances of enactment seemed slim when it became entangled with a tax-extenders bill just before the August recess. However, the Senate breathed new life into the compromise bill by attaching it to the EESA.

Overview of Current Mental Health Parity Rules

Current law generally prohibits group health plans that offer mental health benefits from imposing more restrictive aggregate lifetime or annual limits on such benefits than those applicable to medical and surgical benefits. These lifetime and annual limits refer to dollar limits, and not to caps on the number of visits or days of coverage that may apply to mental health benefits. Also, plans may have different cost sharing requirements -- e.g., deductibles, copays or coinsurance -- for mental health benefits.

Significantly the law does not require group health plans to offer mental health benefits, but instead applies only to those plans choosing to provide such benefits. Additionally, benefits for treatment of substance abuse or chemical dependency are not subject to these mental health parity requirements.

Finally, a group health plan is exempt from the mental health parity rules if applying the rules to the plan results in a cost increase of one percent or more (the "cost increase exemption"). The mental health parity rules also do not apply to group health plans sponsored by employers with 50 or fewer employees (the "small employer exemption").

These requirements are codified in the Employee Retirement Income Security Act (ERISA § 712), the Internal Revenue Code (IRC § 9812), and the Public Health Service Act (PHSA § 2705).

How the Compromise Bill Enhances Current Law

The compromise bill attached to the EESA will enhance existing mental health parity requirements in several important ways.

As is the case under current law, the compromise bill does not require group health plans to provide mental health benefits or substance use disorder benefits. The enhanced parity requirements will apply only to those group health plans that choose to offer these benefits, and that are not eligible for the small employer or increased cost exemptions. Also, the enhanced mental health parity requirements will continue to be codified in ERISA, the IRC, and the PHSA.

The enhanced mental health parity rules will apply beginning with the first plan year that starts after October 3, 2009. The current mental health parity rules, which had been scheduled to sunset on December 31, 2008, will remain in effect until the enhanced requirements take effect.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067 Stephen LaGarde 202.879-5608, Erinn Madden 202.572.7677, Bart Massey 202.220.2104, Mark Neilio 202.378.5046, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Tom Veal 312.946.2595, Deborah Walker 202.879.4955. Copyright 2008, Deloitte.