1997 EMPLOYEE BENEFITS: A LOOK AT THE YEAR IN EMPLOYEE BENEFIT NEWS

JANUARY

Mellon Bank Corp. reaches an agreement to acquire Buck Consultants Inc., marking the first time a financial services company has bought a major benefit consulting firm. The acquisition is intended to give Buck greater resources to become an industry outsourcing powerhouse. A few weeks later, Coopers & Lybrand L.L.P. announces that it will buy Kwasha Lipton L.L.C.

For the third year in a row, group health care costs are remaining nearly stable. Group health care costs rose only 2.5% to an average of $3,915 per employee in 1996 from $3,821 per employee in 1995, according to an A. Foster Higgins & Co. Inc. survey. While cost increases were modest, benefit experts warn that larger increases are on the horizon as health maintenance organizations will seek higher premiums from employers to improve their financial results.

A labor welfare fund files suit in federal court, challenging a 1996 New York law that imposes huge surcharges -- up to 57.27% -- on hospital and other medical bills. The suit, which says the Employee Retirement Income Security Act pre-empts the surcharges, is still pending.

FEBRUARY

Telecommunications giant US West Inc. will absorb $8 million in future pension administration costs to settle a class-action suit by retirees. The retirees alleged that US West was not authorized by its defined benefit pension plan to pay administrative expenses out of plan assets.

Oxford Health Plans Inc., a Norwalk, Conn.-based large health maintenance organization, is beginning an innovative plan to use nurse practitioners as primary care providers.

MARCH

Asserting a need for broad federal rules, two powerful congressional Democrats -- Sen. Edward Kennedy, D-Mass., and Rep. John Dingell, D-Mich. -- are backing legislation that would impose federal quality standards on health maintenance organizations and other network providers. The bill, seen as a congressional response to public anger over certain managed care plan practices, is still pending.

Pension Benefit Guaranty Corp. Executive Director Martin Slate, who played a key role in the 1994 successful drive to enact legislation to shore up the PBGC's financial base, dies suddenly of a heart attack. He was 51. His death precedes the release of a PBGC report showing the agency for the first time has achieved a surplus.

APRIL

New federal regulations will ease the administrative burden on employers of complying with a 1996 law -- soon to go into effect -- that curbs the ability of health care plans to deny coverage for new employees' pre-existing medical conditions. The regulations, among other things, provide a model notice that employers can provide to departing employees listing how long they were covered by the employer's health care plan.

Travelers Corp.'s much-ballyhooed stock option program linked to its 401(k) plan is on hold after the Internal Revenue Service, for unspecified reasons, said it wanted to re-examine the proposal, which would give Travelers and its employees tax advantages not available under traditional stock option plans.

MAY

For the first time, the Equal Employment Opportunity Commission has proposed an approach employers can follow to accommodate employees with mental illnesses so they can continue in their present jobs. Reasonable accommodations for employees with psychiatric illnesses include part-time schedules and reduction of noise in the work area.

A U.S. Supreme Court decision could open the door to lawsuits by fired or laid-off employees who charge their dismissals were meant to prevent them from receiving health care and other employee benefits. The justices ruled that a section in ERISA that bars employers from discharging or discriminating against employees to prevent them from receiving benefits applies to all types of employee benefit plans and not just to pension disputes involving vesting of benefits.

JUNE

Employees in Pennsylvania no longer will be taxed on contributions made to flexible benefit plans to cover their health care expenses and premium contributions. Newly signed legislation makes clear that contributions to flex plans are exempt from Pennsylvania's 2.8% state income tax. That makes New Jersey the only state to still tax contributions to flex plans.

New York has the right to impose taxes on receipts collected by hospitals in the state owned by a longshoremen's union, the U.S. Supreme Court says. The decision is the latest by the high court chipping away at ERISA's pre-emption of state laws and rules that relate to employee benefit plans.

Employer members of the Pacific Business Group on Health will see their 1998 premium rates rise an average of 1%. While the increase is far lower than projected cost increases for other health plans nationwide, it follows three years of flat and falling rates for PBGH members.

Employers are lobbying Congress to drop a provision in a tax bill that would require employees to obtain spouses' written consent before they could take lump-sum withdrawals or loans from 401(k) plans. Backers of the provision, attached to a Senate tax bill by Sen. Carol Moseley-Braun, D-Ill., said some employees had drained funds from the plans and left spouses with nothing. Critics said the provision would increase plan administrative costs and reduce employee participation. A congressional conference committee later drops the proposal.

JULY

Tax legislation sent to President Clinton will ease administrative burdens for employers with pension plans. Among other things, the legislation makes it easier for employers to remove from their pension rolls former employees with small accrued benefits, exempts public pension plans from non-discrimination rules and exempts employers from filing certain previously required reports. The president later signs the bill.

A group of Hawaiian employers is challenging a state law that forces them to provide health care benefits to anyone an employee deems a "reciprocal beneficiary," whether or not the employee has a connection with the beneficiary. In a later settlement, the state attorney general agrees to apply the law only to traditional indemnity plans, which cover only 5% of employees in the state.

AUGUST

The International Brotherhood of Teamsters strikes United Parcel Service of America Inc. after UPS demands to withdraw from multiemployer pension plans covering Teamster employees. UPS says it wants to leave the underfunded plans -- at a cost of $700 million in withdrawal liability charges -- because it doesn't want to pay for benefits for other employees in the plans. Benefit experts say if UPS leaves the plans it could result in sharply higher contributions for remaining employers. To settle the strike, UPS later drops its demand.

Columbia/HCA Healthcare Corp., is selling ValueRx, the nation's largest prescription benefit manager not owned by a pharmaceutical manufacturer, amid a federal investigation over Columbia's Medicare billing practices. The sale still is pending.

SEPTEMBER

Federal budget legislation signed by President Clinton will give retirees new health care alternatives to the traditional Medicare program. Among other things, retirees will be able to choose from provider-sponsored organizations, Medicare preferred provider organizations, private-for-service plans and medical savings accounts linked to high-deductible indemnity policies.

The Pension Benefit Guaranty Corp. is dropping its list of the 50 worst-funded corporate pension plans, a list the agency has published annually since 1990 to encourage companies to put more money in their plans. Changes in federal law, including faster funding rules and more disclosure to plan participants, have made the list obsolete, says PBGC Executive Director David Strauss.

After a series of legislative successes, President Clinton is targeting new areas to expand health care coverage. Specifically, President Clinton says he wants legislation passed to ban so-called drive-through mastectomies and end so-called gag rules in managed care plans. President Clinton also says something needs to be done to expand coverage for retirees too young to be eligible for Medicare and workers who lose their jobs and can't afford to pay COBRA premiums.

A health care purchasing alliance is issuing a report card on how satisfied patients are with their providers. What is new about the reports issued by the Pacific Business Group on Health is that doctors' groups -- not the HMO or other managed care network to which they belong -- are the ones being judged.

Sears Roebuck & Co., known for generous employee benefits programs, is cutting back. The huge retailer says for competitive reasons it will cease contributions to a supplemental health care plan for future retirees and scale back life insurance benefits for most current retirees and eliminate it altogether for future retirees.

OCTOBER

The quality of managed care varies widely across the country, according to a new report. The report by the National Committee for Quality Assurance found little correlation between premiums paid to health maintenance organizations and enrollee satisfaction. The report could be a starting point for benchmarking the managed care industry.

In anticipation of a Jan. 1, 1998, effective date of a new federal law, many employers are eliminating dollar caps on their mental health care benefits programs. The law bars employers from offering, as most plans now do, lower annual and lifetime benefits for mental disorders than for physical disorders.

In the wake of a one-day fall of more than 500 points in the Dow Jones Industrial Average, 401(k) plan participants are keeping their cool. While benefit administration centers were flooded with hundreds of thousands of phone calls, only a tiny percentage of participants moved money out of equity funds into more stable investment options.

Shares in managed care companies are walloped by the Oct. 27 stock market plunge. The biggest loser is HMO*Oxford Health Plans Inc., whose value fell by about two-thirds in one day after it disclosed that accounts receivable were not being collected on time. Its stock continues to drop. Shares in other managed care companies, though, rebound sharply the day after the crash.

NOVEMBER

New Internal Revenue Service rules will make it easier for employees to change their flexible benefit plan decisions. While many decisions -- such as how much to contribute to a flexible spending account -- made before the start of a plan year are typically irrevocable, the IRS says there can be exceptions. Some of those exceptions include situations when employees move during a plan year and an HMO they had selected is not where the employee now resides.

Employers, insurers and managed care organizations are fighting legislation -- backed by about half of the House of Representatives -- thatbusiness lobbyists say would be even more damaging than the Clinton health care reform plan. The measure, the Patient Access to Responsible Care Act, introduced by Rep. Charlie Norwood, R-Ga., taps the well of growing public concern about certain managed care practices. But the bill has less to do with managed care and more to do with protecting the income of medical and other health care-related professionals, business groups charge.

A presidential panel backs recommendations to improve patients' access to quality health care. Among other things, the panel, in proposing a "Consumer Bill of Rights and Responsibilities," says health care plan enrollees should have access to emergency room services 24 hours a day and direct access to specialists for serious or complex conditions. Physicians also should be allowed to provide patients information on all treatment options.

DECEMBER

Total employee benefit costs -- which include pension and health care expenses, as well as paid time off -- slipped 3.9% in 1996 to an average of $14,086 per employee, according to a new survey by the U.S. Chamber of Commerce. Stable health care expenses and falling pension costs are responsible for the decline in benefit costs. But with health care costs increasing in 1997 and 1998, total benefit expenses soon could be marching upwards again.