E M P L O Y E E B E N E F I T S , C O M P E N S A T I O N
& P E N S I O N L A W
Vol. 4, No. 2: January 30, 2003
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Publisher: LSN Employment, Labor, Compensation & Pension Journals
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Topic of This Issue:
Tax and ERISA Issues
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T A B L E of C O N T E N T S
_________________________________________________________________
NEW and FORTHCOMING ARTICLES
"Can 401(k) Accumulations Generate Significant Income for Future
Retirees?"
EBRI Issue Brief, No. 251, November 2002
SARAH HOLDEN
Investment Company Institute
JACK VANDERHEI
Temple University
Risk Management & Insurance & Actuarial Science
"Benefit Cost Comparisons Between State and Local Governments and
Private-Sector Employers"
EBRI Notes, Vol. 23, No. 10, October 2002
KENNETH J. MCDONNELL
Employee Benefit Research Institute (EBRI)
"Integrating the Tax Burdens of the Federal Income and Payroll
Taxes on Labor Income"
Virginia Tax Review, Vol. 22, Summer 2002
DEBORAH A. GEIER
Cleveland State University College of Law
"Removal of the ERISA Preemption Shield: Will the Third Circuit's
Approach Make a Difference? In re U.S. Healthcare, Inc."
Delaware Journal of Corporate Law, Vol. 26, No. 2, pp.
585-603, November 2001
DEBORAH J. MASSARO
Independent
"Another ERISA Twist: The Mysterious Case of Pegram and the
Missing Fiduciary"
University of Pittsburgh Law Review, Vol. 63, No. 2, pp.
235-292, 2002
E. HAAVI MORREIM
University of Tennessee, Memphis
College of Medicine
WORKING PAPERS
"What ERISA Means by 'Equitable': The Supreme Court's Trail of
Error in Russell, Mertens and Great-West"
JOHN H. LANGBEIN
Yale Law School
S S R N I N F O R M A T I O N
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N E W and F O R T H C O M I N G Articles
_________________________________________________________________
"Can 401(k) Accumulations Generate Significant Income for Future
Retirees?"
EBRI Issue Brief, No. 251, November 2002
BY: SARAH HOLDEN
Investment Company Institute
JACK VANDERHEI
Temple University
Risk Management & Insurance & Actuarial Science
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=357721
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Contact: JACK VANDERHEI
Email: Mailto:temple@vanderhei.com
Postal: Temple University
Risk Management & Insurance & Actuarial Science
489 Ritter Annex
Fox School of Business and Management
Philadelphia, PA 19122 UNITED STATES
Phone: 610-525-6139
Fax: 435-603-1422
Co-Auth: SARAH HOLDEN
Email: Mailto:sholden@ici.org
Postal: Investment Company Institute
Research Department
1401 H Street, NW
Washington, DC 20005 UNITED STATES
Paper Requests:
Contact Alicia Willis at Mailto:publications@ebri.org, or 2121 K
St., NW, Suite 600, Washington, DC 20037-1896.
Phone:(202)572-7422, Fax:(202)775-6312. Full-Text downloads are
available from SSRN Online for $7.50.
ABSTRACT:
This Issue Brief develops a model that projects the proportion
of an individual's preretirement income that might be replaced
by 401(k) plan accumulations at retirement, under several
different projected scenarios. The 401(k) participant behaviors
in the model are based on the year-end 2000 database collected
by the Employee Benefit Research Institute (EBRI) and the
Investment Company Institute (ICI) in their collaborative effort
known as the EBRI/ICI Participant-Directed Retirement Plan Data
Collection Project. The most significant factor affecting
projected replacement rates at retirement is having access to a
401(k) plan. Projected replacement rates from 401(k)
accumulations at retirement are reduced significantly when
participants are not offered a 401(k) plan in all portions of
their careers.
Keywords: 401(k) Plans, Employment-based Benefits, Income
Replacement Rate, Retirement Income, Social Security
JEL Classification: D31, D91, J26
______________________________
"Benefit Cost Comparisons Between State and Local Governments and
Private-Sector Employers"
EBRI Notes, Vol. 23, No. 10, October 2002
BY: KENNETH J. MCDONNELL
Employee Benefit Research Institute (EBRI)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=348525
Other Electronic Document Delivery:
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SSRN only offers technical support for papers
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Contact: KENNETH J. MCDONNELL
Email: Mailto:MCDONNELL@EBRI.ORG
Postal: Employee Benefit Research Institute (EBRI)
Suite 600
2121 K Street, NW
Washington, DC 20037-1896 UNITED STATES
Phone: (202) 775-6342
Fax: (202) 775-6312
Note: This paper contains the fulltext of another article:
"Findings From the 2002 Health Confidence Survey: Five
Years of HCS Data Show Little Change in Confidence or
Satisfaction."
Paper Requests:
Contact Alicia Willis at Mailto:publications@ebri.org, or 2121 K
St., NW, Suite 600, Washington, DC 20037-1896.
Phone:(202)572-7422, Fax:(202)775-6312. Full-Text downloads are
available from SSRN Online for $7.50.
ABSTRACT:
This article examines some of the causes of the differences in
total compensation costs for private-sector employers and state
and local government employers. The datasets used are from the
Bureau of Labor Statistics and from EBRI tabulations of the
March 2001 Current Population Survey.
Keywords: Employee Benefit Costs, Employment-based Benefits
JEL Classification: J32
______________________________
"Integrating the Tax Burdens of the Federal Income and Payroll
Taxes on Labor Income"
Virginia Tax Review, Vol. 22, Summer 2002
BY: DEBORAH A. GEIER
Cleveland State University College of Law
Contact: DEBORAH A. GEIER
Email: Mailto:DEBORAH.GEIER@LAW.CSUOHIO.EDU
Postal: Cleveland State University College of Law
1801 Euclid Avenue
Cleveland, OH 44115 UNITED STATES
Phone: 216-687-2341
Fax: 216-687-6881
ABSTRACT:
The staff of the Joint Committee on Taxation estimated in 2000
that, under the law at that time, the top 1 percent would pay
33.6 percent of the total federal personal income tax collected.
If, however, all federal taxes are measured, including the
regressive Social Security and Medicare taxes, the share paid by
the top 1 percent plummets to 18.6 percent. These numbers will
become even more pungent after the 2001 income and estate tax
cuts for the super wealthy are fully phased in.
Provocative empircal studies published by economists Andrew
Mitrusi and James Poterba in 2000 show that nearly two-thirds of
American households now pay more in federal payroll taxes than
income taxes, chiefly becasue of significant increases in the
payroll tax burden over the last 20 years, and that the wealthy
experienced an aggregate tax reduction between 1979 and 1999,
while low- and middle-income taxpayers experienced a tax
increase. The combination of income and payroll taxes results in
much higher effective tax rates, as well as a higher total tax
burden, for the lower and middle classes - as well as a higher
portion of the federal tax burden being borne by labor income
(as opposed to capital income, which is concentrated in
wealthier households) - than is probably widely appreciated.
This article explores the historical reasons why we have
three, separate taxes on labor income at the federal level - the
income tax, the Social Security tax, and the Medicare tax - and
considers how and why we might integrate the tax burdens on
labor income in some way today. After reviewing the history of
these taxes and confronting the issue of whether we ought to
link the payroll tax paid to future benefits received on an
individual basis, the article ultimately concludes that a
portion of the employee payroll taxes, both Social Security and
Medicare, ought to be creditable, dollar for dollar, against any
income tax liability, with a refundability feature capped by
reference to a reasonable "personal exemption" amount. Cash
Social Security payments received, if any, ought then to be
fully includable in gross income under the income tax when
received, though the value of medical care received under the
Medicare program ought to remain excludable.
A revenue neutral (and thus more realistic) alternative to
integration might be to repeal the Social Security wage ceiling
of $84,900 (just as under the Medicare tax) and slash the
marginal rates as low as possible to retain revenue neutrality,
while maintaining the payment formula (with the wage ceiling) as
it is today. Once the Social Security and Medicare taxes are
seen as true taxes that fund government spending that helps to
support the infrastructure of our regulated capitalist economy -
and not as equivalents to private pension plans or insurance
contributions - then objections to repealing the wage ceiling
should be muted. If progressivity in the tax burden is generally
justified, then there is no reason why the Social Security tax
should be predominantly borne by the middle and lower classes.
JEL Classification: H24
______________________________
"Removal of the ERISA Preemption Shield: Will the Third Circuit's
Approach Make a Difference? In re U.S. Healthcare, Inc."
Delaware Journal of Corporate Law, Vol. 26, No. 2, pp.
585-603, November 2001
BY: DEBORAH J. MASSARO
Independent
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=333043
Contact: Linda J. Hahs
Email: Mailto:law.review@law.widener.edu
Postal: Delaware Journal of Corporate Law
Widener University School of Law
P.O. Box 7286
Wilmington, DE 19803 UNITED STATES
Phone: 302-477-2145
ABSTRACT:
This comment analyzes the Third Circuit Court of Appeals' recent
decision in In re U.S. Healthcare, Inc., and its potential
impact on civil liability for Managed Care Organizations (MCOs).
In most cases, the current Supreme Court view denies a
sufficient legal remedy to both patients and their families who
are victimized by poor medical decisions made by their MCOs.
This problem exists because the Supreme Court has held that most
claims against MCOs are governed by the Employment Retirement
Income Security Act (ERISA), a federal statute that severely
limits a complainant's recovery of damages and preempts
meaningful state claims in this area.
In In re U.S. Healthcare, Inc., the court circumvented ERISA
preemption with the "quality-versus-quantity" distinction that
it originally crafted in Dukes v. U.S. Healthcare, Inc. The
court used this analysis to justify remanding the case to state
court. It explained that ERISA only preempts state claims that
relate to the quantity of care provided to the plan participant,
while leaving intact the state claims that relate to the quality
of that care. In its opinion, the court conceded that this
distinction may not always be clear.
______________________________
"Another ERISA Twist: The Mysterious Case of Pegram and the
Missing Fiduciary"
University of Pittsburgh Law Review, Vol. 63, No. 2, pp.
235-292, 2002
BY: E. HAAVI MORREIM
University of Tennessee, Memphis
College of Medicine
Contact: E. HAAVI MORREIM
Email: Mailto:hmorreim@utmem.edu
Postal: University of Tennessee, Memphis
College of Medicine
956 Court Avenue
Suite B324
Memphis, TN 38163 UNITED STATES
Phone: 901-448-5686
ABSTRACT:
In Pegram v. Herdrich, 530 U.S. 211 (2000), the Supreme Court
addressed the question whether physicians who are owners of an
HMO can be acting as ERISA fiduciaries when they make decisions
about which interventions they will provide for their own
patients while rendering medical care. The Seventh Circuit had
ruled that these physicians can be ERISA fiduciaries and that
such financial relationships can constitute a conflict of
interest that, in turn, can breach their ERISA fiduciary duty.
After observing that HMOs cannot function without at least some
resource controls such as financial incentives, the Court ruled
that it need not rule on breaches of fiduciary duty, because
physicians who are making "mixed" decisions - in which
determinations about eligibility for benefits are mixed with
medical decisions about which interventions are appropriate for
an individual patients' care - are not fiduciary decisions.
This Article argues that the Court's analysis was incorrect,
because under at least some circumstances physicians can indeed
serve as ERISA fiduciaries, even while in the act of directly
providing care to their own patients. One particularly clear
case is the physician who is paid via capitation. A close
examination of ERISA's distinctive statutory definition of
"fiduciary" shows that, because capitation gives the physician
complete control over a designated range of financial resources,
the capitated physician's decisions about resource use
(including which costly interventions to order for their own
patients) can fully satisfy ERISA's definition, at least with
the ambit of capitated resource control. In any given instance,
the question whether a treating physician is also acting as an
ERISA fiduciary depends on the exact financial arrangements
under which he is functioning.
To determine that a treating physician has the type of
resource control that renders him an ERISA fiduciary, however,
does not imply that each and every medical decision he makes for
his patients is therefore a fiduciary decision. Indeed, most
medical care decisions are not. Rather, this Article shows that
only a certain limited subset of medical care decisions are
fiduciary, and it provides criteria to discern which are which.
At that point it becomes possible to discuss the conflicts of
interest that can arise when treating physicians also serve as
ERISA fiduciaries.
In the context of this analysis, the Article explains why
courts, including the Supreme Court, are deeply confused about
the financial structures by which health care is now delivered.
______________________________
W O R K I N G P A P E R Abstracts
_________________________________________________________________
"What ERISA Means by 'Equitable': The Supreme Court's Trail of
Error in Russell, Mertens and Great-West"
BY: JOHN H. LANGBEIN
Yale Law School
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=371104
Paper ID: Yale Law & Economics Research Paper No. 269
Date: January 2003
Contact: JOHN H. LANGBEIN
Email: Mailto:john.langbein@yale.edu
Postal: Yale Law School
P.O. Box 208215
New Haven, CT 06520-8215 UNITED STATES
Phone: (202) 432-7299
Paper Requests:
Contact Karen Crocco, Program for Studies in Law, Economics, and
Public Policy, Yale Law School, 127 Wall Street, P.O. Box
208215, Yale Station, New Haven, CT 06520-8215.
Mailto:karen.crocco@yale.edu
ABSTRACT:
In a pair of cases decided by 5-4 majorities (Mertens, 1993;
Great-West, 2002) interpreting the scope of remedy for
wrongdoing under ERISA, the Supreme Court has construed the
statute's grant of 'appropriate equitable relief' to prevent the
victims of ERISA-prohibited conduct from being compensated for
consequential injury. The Court read ERISA's authorization of
'appropriate equitable relief' to have disinterred the
law/equity division from the era before the two systems were
fused in the 1930's, and the Court treated equity as not having
awarded monetary relief. As a consequence, lower courts have
held ERISA to preclude remedy in a host of situations in which
wrongful plan administration (almost always in violation of
ERISA's fiduciary rules) has caused expense, physical harm, or
other suffering.
This paper explains why and how the Court's interpretation of
ERISA remedy law went wrong, beginning with the Court's earlier
encounter with the field in Russell (1985). The main theme is
that the reach of trust-law principles in ERISA is far deeper
and more controlling than the opinions in Mertens and Great-West
allow. When federalizing the administration of pension and
employee benefit plans in ERISA, Congress made a deliberate
choice to subject these plans to the pre-existing regime of
trust law rather than to invent a new regulatory structure. In
its most important dimension, ERISA is federal trust law.
Congress intended ERISA remedy law to replicate the core
principles of trust remedy law in the regulation of pension and
benefit plans, including the long-familiar make-whole standard
of trust remedy law.