3.

4.

5.

If, during this one-year period, the separated participant retires, is reemployed, or elects some type of settlement provided for under the plan which closes his account, he should not have to be reported on Schedule SSA.

Permit multiemployer plans (and this idea may be equally applicable to single employer plans) to make a one-time reporting on Schedule SSA of all participants who have some degree of vesting and then in subsequent years, report only those participants who attained a degree of vesting during the plan year for which the Schedule SSA is being filed.

If this option is selected, it would not be necessary to report vested participants who have separated from service. The option should be available for plan years beginning in 1978 (or 1977 if recommendation #1 above is not accepted)

Once the option is exercised, the plan should not be allowed to change its reporting method without advance IRS approval. Space should be provided on a revised Schedule SSA for the plan to indicate which reporting method it is using (all vested participants or separated vested only).

If a plan elects to report separated vested participants, the plan should be permitted to determine a "separation from service" on the basis of the plan's own provisions as long as those provisions meet ERISA's minimum standard requirements for participation and vesting. Regardless of which reporting method is adopted by the plan (reporting all vested participants or only those who have separated from service), plans should be requested to report the type of annuity payable and the amount of the periodic payment, as required by Section 6057(a)(2)(D).

However, any multiemployer plan should have the option, as set forth in the proposed regulations and in the current instructions to Schedule SSA, to report an estimated accrued benefit if fund records are incomplete on past service or noncovered employment or to report no accrued benefit if there is uncertainty regarding the participant's vesting status.

Perhaps no other single reporting and disclosure requirement of ERISA has created so much concern among trustees and administrative managers as Schedule SSA because of its potential cost implications. Certainly, no one questions the right of participants to know where they are in terms of vesting and benefit accrual. Indeed, the participant needs such information if he is going to engage in any kind of rational planning for his retirement years. However, we should always seek the least-cost method of achieving this objective.

In that regard, it must be recognized that multiemployer plans experience these reporting costs in a much more direct way than the typical single employer plan. In the case of the single employer plan, many of these costs can be readily recovered by simply increasing the price of the goods or services the employer provides and the consumer ends up picking up the tab.

In the case of a multiemployer plan, this option is not readily available because the employer is often operating under a two or three-year contract and his contributions are fixed under the terms of the labor contract. In effect, these costs must come directly out of the trust fund as an operating expense of the plan. There simply is no quick-and-easy way to pass these costs onto the consumer because the plan itself does not provide goods and services to the general public.

We hope that with these considerations in mind, you will accept our recommendations in the spirit in which they are intended, namely to give the participant the information he has the right to know on a timely basis and at the same time to keep the cost of fulfilling that obligation as low as possible.

If you have any questions on our recommendations or feel you would like additional information, please contact me directly.

Sincerely,

David T. Livingston, Ph. D.
Corporate Director of Research

DTL:nmm

AMENDED IN ASSEMBLY MAY 25, 1978

Senate Joint Resolution

No. 43

Introduced by Senator Foran

(Goauthor: Assemblyman Knox) (Coauthors: Assemblymen Agnos, Bane, Bannai, Calvo, Duffy, Greene, Gualco, Hayden, Ingalls, Keysor, Knox, Lancaster, McAlister, McCarthy, Nestande, Papan, Robinson, and Young)

April 6, 1978

Senate Joint Resolution No. 43-Relative to multiple employer trusts.

LEGISLATIVE COUNSEL'S DIGEST

SJR 43, as amended, Foran. Multiple employer trusts. Memorializes Congress to amend the Employee Retirement Income Security Act of 1974 to provide for the premption of state law which relates to employee welfare benefit plans only insofar as it conflicts with such act and to clarify the qualification standards for multiple employer trusts. Fiscal committee: no.

1

WHEREAS, As many as 1,500,000 Californians may 2 have health care service plan coverage under contracts 3 issued and self-funded by employee welfare benefit plans 4 as defined in and subject to the Employee Retirement 5 Income Security Act of 1974 (ERISA); and

6 WHEREAS, The Federal courts have held that the 7 State of California's Knox-Keene Health Care Service 8 Plan Act of 1975 is totally preempted by ERISA as to the 9 self-funded Employee Welfare Benefit Plans which 10 would otherwise be subject to that act; and

11 WHEREAS, ERISA is silent (except for generally 12 applicable requirements regarding holding assets in

SJR 43

1 trust, filing with the U.S. Department of Labor, and
2 observing fiduciary duties) with respect to financial
3 soundness of self-funded health plans; and

4

WHEREAS, ERISA is silent (except for disclosure
5 requirements) with respect to the manner in which
6 potential enrollees are enrolled in self-funded health
7 plans; and

8

13

WHEREAS, ERISA is completely silent with respect to
9 quality of care or any other aspect of the delivery of
10 health care services to plan enrollees, and is silent with
11 respect to the liability of an enrollee to pay a contracting
12 provider sums owed by, but not paid by, the plan; and
WHEREAS, ERISA is completely silent with respect to
14 the benefits to be provided by health plan contracts and
15 the fairness of such contracts, so that benefits can be
16 illusory, the handicapped can be discriminated against,
17 newly-born or newly-adopted children need not be
18 covered, complications of pregnancy can be excluded,
19 discrimination against spouses can be practiced, and
20 totally disabled employees whose employment is
21 terminated need not receive "grace periods" coverage;
22 and

23 WHEREAS, These concerns have been provided for
24 addressed in California by the Knox-Keene Health Care
25 Service Plan Act, but California residents who rely on
26 self-funded employee welfare benefit plans for their
27 health coverage are deprived of the benefits and
28 protections of that act because of total preemption under
29 Section 514 of ERISA, notwithstanding ERISA's
30 substantial silence in the area of state regulation of health
31 care service plans; and

32 WHEREAS, As many as 130,000 Californians may have
33 disability insurance coverage under contracts issued by
34 multiple employer trusts purporting to be employee
35 benefit plans as defined in ERISA and subject to the
36 exclusive jurisdiction of the U. S. Department of Labor;
37 and

38 WHEREAS, Several purported ERISA multiple
39 employer trusts have become insolvent within the past 18
40 months leaving thousands of California residents without

SJR 43

disability insurance coverage and with millions of dollars 2 in unpaid claims; and

3 WHEREAS, These multiple employer trusts claim to 4 be exempt from the financial solvency, market contract and other regulations of the California Insurance Code by 6 virtue of total preemption under Section 514 of ERISA; 7 and

5

8

WHEREAS, The multiple employer trusts which have 9 to date been challenged in court have all uniformly been 10 found to be unlicensed insurance companies not subject 11 to the provisions of ERISA; and

12

WHEREAS, ERISA provides no standards for 13 determining administratively which multiple employer 14 trusts are subject to its provisions and no standards have 15 been set by the U. S. Department of Labor; and

16

WHEREAS, The State of California and other states 17 have expended great sums of money to resolve judicially 18 issues relating to preemption and multiple employers 19 trusts; and

20 WHEREAS, Court actions can only affect the named 21 individual multiple employer trust and have no universal 22 application; now, therefore, be it

23

Resolved by the Senate and Assembly of the State of 24 California, jointly, That the Legislature of the State of 25 California respectfully memorializes the President and 26 the Congress of the United States to enact an amendment 27 to Section 514 of ERISA to provide for the preemption of 28 state laws which relate to employee welfare benefit plans 29 only insofar as such laws conflict with ERISA, and either 30 to enact an amendment to ERISA to clarify the definition 31 of multiple employer trusts which are employee benefit 32 plans subject to the provisions of ERISA or to direct to the 33 U.S. Department of Labor to immediately review filings 34 made with it by multiple employer trusts operating in the 35 State of California to determine which, if any, are 36 employee benefit plans as defined in and subject to the 37 provisions of ERISA and immediately promulgate 38 regulations implementing standards for determining 39 which multiple employer trusts are subject to ERISA and 40 which are not; and be it further