An obscure federal law called ERISA is causing headlines. Maryland’s “Wal-Mart tax” to impose “pay-or-play”taxes on companies that don’t offer health plans was struck down by the courts as contrary to ERISA’s prohibition on states imposing coverage requirements upon employers with multi-state health plans.
The Massachusetts health care plan’s even broader “pay-or-play” requirement, which is being copied by California and other states, is also not expected to survive ERISA challenge.
Some, therefore, want Congress to amend ERISA to allow such “pay-or-play” taxes as worthy “experiments.” Thus far, the “pay-or-play” experiments are proving far more expensive to state coffers than politicians promised, and raise serious competitiveness issues. The Massachusetts and California health care initiatives are already heading toward double the price of estimates, and they haven’t even started yet.
ERISA, the Employee Retirement Income Security Act, passed by Congress in 1974, originated in concerns over responsibilities of those who exercise discretionary control or authority over pension and health plans.
The law was sparked by such then-major bankruptcies as Studebaker’s. Core provisions require fiduciaries to prudently act and invest solely in the interests of beneficiaries, prohibiting transactions with parties with adverse interests.
Due to the requirement that states and localities now reveal the audited liabilities they’ve incurred for retiree health and pension plans, this ERISA provision assumes heightened importance.
The complex relationships between politicians, government officials, union leaders and other plan beneficiarees are being exposed as often in conflict. Their self-interests, and of those whom they represent, too often result in imprudent decisions and transactions that are clearly contrary to the plan’s fiscal soundness.
Elected politicians and other government employees who sit on government retiree pension and health boards owe a primary responsibility to citizensand taxpayers for a broad range of services, the provision of which is severely restricted by unaffordable electoral-driven promises made for government employee retirement pension and health benefits.
Union leaders and other beneficiaries of these plans also sit on these boards, their primary interest being more benefits from which they personally benefit, regardless of their affordability or funding.
ERISA specifically exempted government pension and health plans from its requirements. So, the case law is much murkier and conflicted here than with private sector pension and health plans under ERISA.
Some courts have applied the equitable principles of ERISA in deciding cases involving government plans, and each state has laws requiring various levels of responsibility much more disjointed in application than the comprehensive ERISA federal law.
There is an estimated $1.5 trillion unfunded liability in benefits promised to 25 million current and retired state and local government workers for pensions and retiree health care. Properly funding these promises compromises our ability to satisfy public safety, education, health care, roads, and other taxpayer needs.
An emerging case in San Diego County displays the issues that courts will have to decide. Last Dec. 6, a county Board of Supervisors vote was reported in light of “new accounting rules [which] force the county to make higher contributions to the retirement plan, potentially costing $1.8 billion over the next 20 years.”
As a result the county would trim its $30-million-per-year contributions to the county’s pension plan for retiree health care if it did not trim a retiree health plan eligibility for workers retired after 2002 that has been a voluntary benefit not required of the county.
The retirement plan board has resisted complying, viewing it as “a form of political intimidation,” and barred a county supervisorappointed to the retirement board from voting.
One of the dissenting retirement board trustees is reported noting, “the reason given for Jacob’s disqualification — her alleged conflict of interest — could also be applied to six of the nine board members who would receive health care benefits in the future.” The next step: “County counsel John Sansone, who issued an opinion saying no legal reason exists to disqualify Jacob, said the county will sue the retirement association over the decision.”
As in other government plans, retirement boards are largely comprised of government officials, government union members, and other beneficiaries. Now that the enormous bills coming due must be publicly revealed and provided for out of scarce tax funds, the conflict is becoming more evident between the duties of politicians to taxpayers and the self-interests of government employees.
States do not have to be relieved of ERISA to “experiment.” No one can afford their experiments. Instead, ERISA should be broadened to apply to state and government retiree plans. There are too many conflicts of interest among those serving as fiduciaries. Bankrupt government cannot be tolerated.
Bruce Kesler is an employee benefits consultant and broker in Encinitas, Calif., and blogs at Democracy-Project.com.
