WASHINGTON-As congressional conferees hammer out a final tax bill, employer benefits lobbying is bearing fruit.

Conferees last week agreed to knock out a provision that would have required written spousal approval before an employee could take money out of a 401(k) plan in any form other than an annuity.

That provision, which had been attached to the Senate bill in executive session by Sen. Carol Moseley-Braun, D-Ill., became the target of a massive lobbying campaign by trade groups and individual employers.

Employers told legislators and congressional staffers that such a requirement not only would complicate and increase their own administrative costs, but that it also would reduce participation by employees concerned that they would lose easy access to their 401(k) account balances if they needed spousal consent to take money out of their accounts.

"The argument that worked the most was that it would make participation levels drop like a rock," said Lynn Dudley, director of retirement policy at the Assn. of Private Pension & Welfare Plans in Washington. The APPWP led the employer drive to knock out the provision, which was in only the Senate-passed and not in the House-passed bill.

While employers were celebrating their victory last week, Washington observers warned the 401(k) plan spousal issue is unlikely to go away.

"This won't be the end of it. I'm sure it will come back," said Ann Combs, a principal with William M. Mercer Inc. in Washington.

While employers triumphed on the 401(k) spousal consent provision, there were setbacks as Republican conferees continued working on settling differences between House- and Senate-passed tax bills and then presenting a package to the White House for more negotiations. Those setbacks included:

Republican conferees agreed to drop a series of medical malpractice reforms, which were only in the House bill. Those reforms included a $250,000 limit on non-economic damages in medical malpractice suits.

Conferees dropped provisions in the House-passed tax bill that would have allowed trade associations to offer health care programs to members that would have been exempt from state regulation. Those provisions, supported by a broad coalition of small-employer groups, drew the ire of state regulators and health insurance trade associations, who warned that opening the door to such programs would lead to a sharp increase in health insurance fraud.

Other actions conferees took, though, could aid employers. For example, conferees tentatively agreed to provisions that could expand the availability of Medicare risk health maintenance organizations. Employers can significantly cut their retiree health care costs when retirees obtain coverage through Medicare risk HMOs and move out of the traditional Medicare program and drop employer-provided plans that supplement Medicare.

Under the tentative agreement, HMOs that become so-called risk contractors and take the responsibility of providing health care coverage to retirees eligible for Medicare would be entitled to a minimum payment rate of $367 per month per retiree signing up for coverage.

Currently, Medicare payment rates to HMOs in some parts of the country are less than $250 a month per retiree. The higher payment rate would allow HMOs to move into new parts of the country where payment rates are now so low that it is fiscally impossible for HMOs to become Medicare risk contractors.

Conferees also were working on a slew of provisions to expand individual retirement accounts. Agreed-on IRA provisions include those that would:

Eliminate the 10% excise tax on pre-retirement distributions from tax-deductible IRAs used to pay for educational expenses and a down payment toward a first-time home purchase.

Allow people without pension coverage to qualify for tax-deductible IRAs regardless of household income or whether their spouses are covered by a pension plan.

Currently, a person without pension coverage is ineligible to maintain a tax-deductible IRA if the person's spouse is covered by a pension plan and income is above a certain level.

Gradually increase the amount of money people with pension plan coverage can earn and still make tax-deductible contributions to an IRA. Under current law, the full $2,000 tax deduction for IRA contributions only is allowed for those with adjusted gross incomes of less than $25,000 and joint filers with adjusted gross incomes of less than $40,000.

The $2,000 tax deduction under current law is reduced, based on a sliding scale, for individuals with adjusted gross incomes of from $25,000 to $35,000 and joint filers with adjusted gross incomes of $40,000 to $50,000.

Under the conferees' agreement, the income threshold for making the full $2,000 tax-deductible IRA contribution would increase in 1998 by $10,000 for joint filers and by $5,000 for single filers. The limits would rise by $1,000 annually beginning in 1999. It wasn't immediately clear last week when the annual $1,000 increase in income limits would cease.

Continue the tax-favored status of employer-provided educational assistance benefits through May 2000.

Conferees earlier this month, as reported, agreed to a number of non-controversial pension-related changes. Those changes include allowing employers to remove from their pension rolls former employees whose accrued benefits have a present value of up to $5,000. That's an increase of the current $3,500 cash-out limit. Conferees, though, decided the new $5,000 limit would not be indexed to inflation.

Other changes agreed to earlier include requiring the Labor and Treasury Departments to issue guidance by Dec. 31, 1998, on which documents and benefit notifications employers can distribute electronically to employees, such as through company e-mail systems.

The conferees also agreed to a permanent repeal of a 15% excise tax on large pension distributions, such as lump-sum payments exceeding about $800,000. But, benefit lobbyists said they were concerned that the White House might object to the repeal on the grounds that it was a "special interest" provision because it would only benefit a relatively small number of people.