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Employer Groups Critical of Proposal to Change Retiree Benefit Law

By Bill Leonard  4/10/2009

Legislation to prohibit employers from making post-retirement cancellations or reductions of health benefits could have a reverse effect and actually reduce health coverage for retirees, according to a group of business-related and benefit advocacy groups.

Rep. John Tierney, D-Mass., introduced the Emergency Health Benefits Protection Act (H.R. 1322) in March 2009, and several employer groups, including the Society for Human Resource Management, responded by sending a letter to Tierney and several members of the House Education and Labor Committee outlining the groups’ concerns with the legislation. They said the proposal would override portions of the Employee Retirement Income Security Act (ERISA) and could damage the voluntary nature of employer-provided benefits plans.

“Changing ERISA in this manner would erode the employer-based system that provides more than 100 million people with access to quality, affordable health care,” the letter stated.

The bill would require employer-sponsored benefits plans to adopt provisions barring post-retirement cuts in retiree health benefits and would require employers to restore benefits reduced after retirement. The bill would offer exemptions to employers that cannot restore benefits because of substantial business hardships, which would be determined by rules issued by the U.S. Labor Department. In addition, the proposal would create a loan guarantee program to assist employers in restoring retiree health benefits.

Tierney introduced a similar measure in 2007, claiming that the law is needed to protect the health coverage of retirees in today’s rough economic climate.

“Often having worked for decades in good faith, many retirees across the country are now having their health care benefits cut by their former employer,” Tierney said in a written statement. “To put an end to this unfair practice, my colleagues and I have re-introduced legislation, which would ensure that profitable companies keep their health care promises to retirees.

Rep. George Miller, D-Calif., chair of the House Education and Labor Committee, signed on as a co-sponsor of the bill. The legislation gained another strong ally when Rep. Rob Andrews, D-N.J., chair of the House Subcommittee on Health, Education, Labor and Pensions, agreed to sponsor H.R. 1322.

Sources familiar with the issue say that with the backing of Miller and Andrews, the bill has a good chance of passing the House. The legislation would face a tougher challenge in passing the Senate, where Republican leaders would likely attempt to block the measure with a filibuster, sources say. A Senate version of the bill has not been introduced.

ERISA prohibits employers from reducing or terminating promised benefits unless employers expressly reserve the right in a plan document and employers disclose fully —in accordance with the law—their rights to reduce or terminate retiree health coverage.

“Without the provision to account for exigencies, employers would have to weigh the benefit of providing retiree health benefits at all against the potential liability of offering a benefit plan which could result in the loss of thousands of American jobs,” the letter from the employer groups stated. “H.R. 1322 significantly increases both the cost and risk to the employer of voluntarily providing retiree health plans. These costs and risks will have to be paid for by reduced benefits, wages or jobs.”

Committee debate on the bill has not yet been scheduled.

Bill Leonard is senior writer for SHRM Online.
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