The ERISA and Non-ERISA Employee Benefit Implications of the Emergency Economic Stabilization Act of 2008

October 27th, 2008

On October 3, 2008, President Bush signed into law the Emergency Economic Stabilization Act of 2008 (EESA).  While most people are familiar with the “bailout” provisions applicable to the financial industry that are contained in the statute, many are not aware that it also contained numerous other provisions unrelated to the economic bailout.  Several of those other provisions are applicable to various employee benefit plans.

One of the most significant benefit provisions contained in the EESA is the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008.  Effective January 1, 2009, this act makes permanent the 1996 mental health parity provisions.  Additionally, it also makes certain enhancements to existing mental health parity provisions, including:

  • Requiring plans that provide mental health benefits to extend those benefits to substance abuse-related problems.
  • Mandating that the cost-sharing requirements for mental health and substance abuse benefits (such as deductibles, co-insurance, and out-of-pocket costs) may not be more restrictive than the cost-sharing requirements applicable to medical and surgical benefits.
  • Mandating that the benefits limitations requirements for mental health and substance abuse benefits (such as number of visits and maximum days covered) may not be more restrictive than the cost-sharing requirements applicable to medical and surgical benefits and there may not be separate limits for treatment applicable only to mental health and substance abuse benefits.
  • Mandating that participants can receive benefits for mental health and substance abuse treatments received out-of-network if out-of-network treatment is allowed for medical and surgical benefits under the plan.
  • Requiring Plan’s to furnish participants with the criteria used to determine medical necessity and the reason for denial of benefits for mental health and substance abuse claims.

The enhancements are generally effective for plan years beginning one year after October 3, 2009.  However, small employers (less than 50 employees) are excluded from the enhanced provisions.

Other provisions contained in the EESA that can impact employee benefit plans are detailed below:

  • The statute requires that any financial institution that directly sells troubled assets under the EESA, the financial institution must meet certain standards for executive compensation and corporate governance, including limits on compensation, recovery of bonus or incentive compensation, and prohibitions on certain “golden parachute” payments.
  • The statute details for applicable employers that participate in the Troubled Assets Relief Program (TARP), an amendment of the Internal Revenue Code (IRC) §162(m) and a denial of a tax deduction for the payment of compensation or other benefits in excess of $500,000 to executives or other highly compensated employees. The EESA also amends IRC §280G to apply the tax penalties for excess parachute payments to certain employers and their executives who participate in TARP.
  • The statute updates IRC §132(f) to allow employees to exclude employer reimbursements for bicycle commuting expenses from gross income.
  • The statute requires that “nonqualified entities” include in gross income for income tax purposes the employee compensation deferred under a nonqualified deferred compensation plan when there is no substantial risk of forfeiture of the rights to such compensation. A “nonqualified entity” is defined as any foreign corporation unless substantially all of its income is: (1) effectively connected with a trade or business in the U.S.; or (2) subject to a comprehensive foreign income tax.

Employers should consult with benefits counsel to decide whether any of the benefit-related provisions contained in EESA are applicable to their benefits programs.  Please contact our office for more information on the EESA and its benefit plan implications.

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