In 2010, with a majority in the Senate and House of Representatives, President Barack Obama successfully passed his signature piece of legislation, the Patient Protection and Affordable Care Act (ACA), now known by both sides of the aisle as Obamacare. The constitutionality of the ACA was challenged in 2012, but the US Supreme Court left most of the law intact, including the controversial individual mandate provision. Since the law's inception, there have been concerns about how this legislation would affect other federal programs, most notably the Employee Retirement Income Security Act (ERISA). In an effort to provide the most retirement benefits to the greatest number of employees, ERISA ensures fiduciaries are acting in the best interest of plans, plans are adequately funded and plans provide benefits in a nondiscriminatory fashion. In exchange for compliance with ERISA's regulations, employers and employees are given a tax subsidy that makes administration of and contributions to pension plans economically viable for even "mom and pop stores." Although most Republicans oppose the ACA and have unsuccessfully voted over 40 times to repeal the law, employers and employees must comply with the ACA during its rollout period.
Much of the uncertainty surrounding the ACA centers on its costs and how those may in turn affect ERISA benefits. In order to fund compliance with the ACA, employers may attempt to diminish their pension liabilities, leading to potentially underfunded plans, as well as noncompliant plans. ERISA violations may result if rank-and-file members are removed from the plan due to a forced shift from full to part-time status, leading to a de facto discriminatory plan.
The ACA has far-reaching effects on the lives of employees. While on its face, the healthcare law seems to call only for coverage of employees under standard plans, it also affects employee benefits as a whole in its interactions with ERISA. Practitioners have commented on the ACA's triggering of §510 of ERISA, if employers attempt to avoid the law by reducing employees to part-time status to avoid the costs of health insurance and the Act's penalties. Such a change in status may result in a violation of §510, as an attempt to disqualify employees from coverage under the ACA may also result in interference with an employee obtaining his or her rightfully vested pension rights, which the section addresses.
(In)voluntary Enrollment: ERISA vs. ACA
The linchpin of ERISA at the time of its passage was its voluntary nature, incentivized instead though tax subsidies. ERISA's tax subsidies are composed of tax deferrals for both the employee, who pays no taxes until benefits are vested and distributed, and the employer, who receives a deduction when contributions are made. ERISA made it economically foolish to sponsor anything other than a qualified plan. In contrast, the ACA is characterized by its mandatory provisions, notably, the individual mandate, and employer penalties for having substandard plans or not offering healthcare to employees. A report [PDF] notes that the Congressional Budget Office predicts employers will pay $130 billion in penalties over the next ten years. These penalties will be incurred regardless of whether the employer is a governmental entity or a nonprofit that does not pay federal taxes. As ERISA is a voluntary program designed for the benefit of employees, while the ACA is a mandatory program, it is inevitable that a subset of employers will forego their pension plans in order to fund the mandated health plans or penalty taxes. Employers may also convert their defined benefit plans to defined contribution or profit sharing plans to cut costs. For the business with limited resources, the ACA may be fatal to its pension plan. Thus, while ERISA has been voluntary, employers have perceived sponsorship of qualified plans as a condition precedent to decrease turnover of qualified employees with very few transaction costs. However, the cost of the ACA's penalties (if the economics of providing coverage do not make sense), or of providing a health plan may in fact obstruct the funding of pension plans for many employers. This distinction may lead to the weakening of ERISA as an incentive for employers to provide pension plans, and once again bring about the uncertainty that catalyzed pension protection legislation in the first place.
COBRA & the ACA
A notable ERISA program that may change due to the new health care legislation is COBRA. COBRA, which got its moniker by happenstance from the budget legislation it was tacked onto, falls under the umbrella of ERISA and the Internal Revenue Code. COBRA allows former employees (unless discharged for gross misconduct), their spouses and dependents to benefit from continued coverage under the employer's group health plan, usually at 102 percent of the normal premium cost. The length of coverage depends on the circumstances surrounding an employee's discharge. Employees can retain medical, vision, prescription drug, and flexible spending account benefits. While the concept of paying more than the original premium after losing one's job may seem painful, the costs remain much lower than individual insurance. However, the ACA may lead to lower premiums and deductibles on the marketplace than the costs of a pre-ACA COBRA-plan. The costs of supporting COBRA are allocated to the employee, and were previously overlooked because it ultimately led to cost-savings. However, COBRA may become increasingly unnecessary as employees are pointed to the marketplace, rather than insurance sponsored by the employer.
An Opportunity for Law Students to Get in on the Ground Floor
Health plan issues have largely been a subset of the ERISA or Employee Benefits group in many major law firms. These groups are usually small and focus on counseling and design of plans. However, the ACA will inevitably lead to the expansion of these practices, and firms may feel a need to hire ACA specialists. Due to the novelty of the ACA and the issues it poses, law students are just as equipped as any attorney to become experts in this field of law. I urge law students to educate themselves and engage in coursework devoted to this area of the law, because we are best poised to become experts on its policies, problems, and positives.
Meredith-Anne Kurz is the Editor-in-Chief of the Hofstra Labor & Employment Law Journal. She previously interned for Judge Joanna Seybert in the Eastern District of New York. She graduated from Barnard College of Columbia University in 2011.
Suggested citation: Meredith Kurz, ERISA & The Affordable Care Act: A Primer , JURIST - Dateline, Nov. 29, 2013, http://jurist.org/dateline/2013/11/meredith-kurz-erisa-aca.php.
This article was prepared for publication by Endia Vereen, an assistant editor for JURIST's student commentary service. Please direct any questions or comments to her at email@example.com