Blogging Employee Benefits

August 30, 2006

PPA: QCDs from IRAs

Filed under: IRA — Fuguerre @ 7:01 pm

Among the scores of complicated provisions of the Pension Protection Act of 2006, charitable contributions may be made directly from an individual retirement account through a qualified charitable distribution (QCD). [PPA §1201; JCX-38-06 technical explanation] Amounts properly transferred from an IRA via a QCD are not included in the individual’s taxable income; conversely, then, a QCD cannot be included among itemized deductions.

OK, hold on a minute, where’s the beef? If the individual receives a taxable distribution from an IRA and during the same taxable year donates the full pre-tax amount relating to that distribution to the charity, doesn’t that achieve the same result? Well, sort of: for the typical charity-giving taxpayer, this PPA provision offers little if anything. Aside from the charities themselves, who have lobbied for something along these lines for the better part of the past decade, the main beneficiaries of this rule will be –

  • Taxpayers Who Use the Standard Deduction – To achieve similar results under pre-PPA law, the taxpayer would have had to itemize deductions. With a QCD, the taxpayer has no taxable income attributable to the transfer from the IRA, yet can still use the standard deduction. In practice, we’re probably talking relatively small charitable contribution amounts here, since folk regularly relying on the standard deduction aren’t generally known for being generous benefactors, and since we get back to the where’s-the-beef scenario with a QCD amount that (together with other deductible amounts) would be high enough to make the standard deduction less valuable than itemizing. Remember that small-amount prognosis when I turn my attention from where’s-the-beef to where’s-my-trustee.
  • Very Generous Benefactors – QCDs don’t count against the limits on charitable contributions. So a taxpayer with huge past charitable donations at risk of being lost to the 5-year carryover period or donors interested in making a huge one-time charitable contribution can essentially use a QCD to draw down the carryover or extend the charitable contribution limits. Nice, but let’s take a nose count here: exactly how rare are such generous souls? Each QCD by a member of this set could be relatively large – “relatively” there meaning we’re not talking Warren Buffett large, at least not through any QCD, given dollar limits I’ll touch on in a minute – but will there really be enough of these donors to justify Congress’ budget estimates projected for this PPA provision?
  • Recent Converts to Roth IRAs Who Now Want Out – To be exempt from income tax, a qualified distribution from a Roth IRA must be made after the close of the 5th taxable year during which the individual first established any Roth IRA. If an individual established a Roth IRA more recently than 5 years ago, but now wants out and would be otherwise making charitable contributions anyway, then a QCD from the Roth IRA might make a reasonable exit door, as long as the individual can forget that taxes were paid on the front end of the Roth. Is it obvious I’ve arranged these three sets in descending order ranked by my speculation of how many individuals might actually attempt a QCD?
  • Those Who Simply Hate Withholding – Continuing that ranking to what will be the smallest group of the already tiny herd, the itemizer who is not hitting any charitable contribution limits and doesn’t have a new Roth IRA might still cast an eye at a QCD, if just to avoid the withholding on the benchmark transaction.

Not yet convinced that we’re talking of a headcount that probably wouldn’t fill a high school auditorium? Then let’s add a critical requirement that has escaped the notice of some (my fave being one tax professional’s write-up, which claims that a QCD offers a way to “avoid the penalty on early withdrawals”): a QCD may only be made after the taxpayer has reached age 70½ (which obviously is more than a decade beyond the reach of §72(t)). As familiar at this age threshold might feel vis a vis §401(a)(9) via §408(a)(6), don’t let the distinction drawn by this new rule escape notice: for the minimum distribution requirement, we look to April 1 of the year following the year of attainment of age 70½; in contrast, a QCD may be made as soon as the individual is age 70½. But back to the theme of how rare QCDs are likely to be: aside from the unlikelihood that it will become common for fresh septuagenarians to start celebrating their first half-birthday with a QCD, we’re already starting out with a small slice of the IRA universe by restricting QCDs to those over 70½.

And as long as I’m shrinking the QCD phenom down to a pinprick, let’s briefly summarize a few of the other QCD conditions. For one thing, the benchmark donor (normal IRA distribution taken into taxable income, followed by a donation that is itemized) can receive something back from the charitable organization and still get a deduction for the excess of the contribution over the value of the quid pro quo benefit. In contrast, if the taxpayer receives anything of value back from the charitable organization for the attempted QCD, then the entire amount is ineligible for QCD tax treatment. In terms of income taxes and deductions, the worst that might mean is a return to the benchmark, although the JCX-38-06 explanation only mentions that the income exclusion is lost, remaining silent on what ought to be the obvious followthrough that the individual ought then be able to return to the usual itemized deduction route. Even so, it’s not inconceivable that there might be some nuisance issues relating to withholding not having been done on the attempted QCD, among other possible headaches. The practical lesson being: if you have enough courage to try to navigate QCD waters, don’t accept that coffee mug thank-you with the charity’s name on it. And the shrinking aspect of this being that donors who really do want that coffee mug (or more to the point, any of the pricier items offered by charities as enticements for larger donations) aren’t going to want a QCD, while those who overlook the no-gift rule risk being downsized by the IRS out of Congress’ QCD budget projections.

More shrinking tonic: QCDs may not be made to donor-advised funds or supporting organizations, even those maintained by an otherwise acceptable charitable organization. Nor may QCDs be made in exchange for a charitable gift annuity nor to a split-interest charitable trust. Suffice it here to say we’re shaving down the Very Generous Benefactor set, unless we might hope for new charitable contributions to be made above and beyond what would have been directed to those organizations or handled through those means.

I’ve alluded to Congress’ budget estimates several times here; let’s go there for another comment or two. I’m looking at both the Joint Committee on Taxation’s Estimated Budget Effects and the Congressional Budget Office’s Cost Estimate. The picture gets clouded up by PPA’s curious (very heavy euphemism there) pairing of the QCD provision with new filing requirements for split-interest trusts [PPA §1201(b)], both of which are then combined and offset for the §1201 line item in the budget estimate. Help me out here, I confess to serious confusion here: how do new penalties on a split-interest trust’s failure to file a return poke a hole in the federal treasury? Because if we instead call the revenue effect of the split-interest trust filing requirement relatively negligible, then call me skeptical that we get enough out of the very very very rare QCDers to come close to a quarter of $1 billion for 2007 (meaning we’d need in the neighborhood of $1 billion of QCD for the year). Since the maximum annual QCD is $100,000, we’d need 10,000 generous IRA owners over age 70½ going for the max to reach that if all we had to work with were Very Generous Benefactors who care to forgo their donor-advised funds and gift annuities and quid pro quo benefits. And since the average QCD will most certainly be rather far south of the $100,000 ceiling, somewhere the budget estimators are seeing legions of superannuated donors lining up for the new alternative to the benchmark income/deduction route.

Not only that, but budget losses from the split-interest trust filing requirement needs to be enough so to offset positive numbers that ought be there for QCDs beyond the first budget year, since budget estimates continue to show negatives stretching out beyond 2007. Which one would think ought not be there, since the QCD provision sunsets at the end of next year. Meaning not only that we don’t have any remaining budget drain from the standard deduction QCDers, but that we ought be expecting some positive numbers for those who had essentially used the QCD to clear out accumulated carryover (since after all, the QCD for that set is not really a new permanent tax break, but more of the nature of accelerating the deduction).

And that end-of-2007 sunset finally bringing me to my search for the missing IRA trustee. QCDs may look so-so to my small set of elderly taxpayers who would find them advantageous, and certainly must look very promising to charitable organizations hungry for new donations above and beyond what otherwise would have been there, but PPA gives absolutely no incentives to the IRA trustee. Nor does PPA in any way whatsoever require that IRA trustees offer QCDs. All the IRA trustee sees is a rather complex tangle of new rules for which “further clarification” from Treasury is awaited, additional administrative and reporting burdens, in the case of the standard deduction group for the sake of donations that might be rather small amounts relative to the IRA trustee’s effort, for which in exchange the IRA trustee sees only the potential for accelerated disappearance of IRA funds, all for a trick that might have a lifespan no more than 16 months. Is it any wonder that we don’t see IRA trustees rushing to process QCDs, although the provision is already effective, available for use in 2006? “Call us back in November,” advises one of the top IRA providers, stating that no general announcement would be made if and when QCDs could ever be made from its IRAs due to the “cost and potential confusion” of individual IRA holders. Then as if to emphasize the “potential confusion” part of that equation, this particular IRA trustee advises its customer to remember that IRA funds could always simply be withdrawn by the IRA holder, then contributed by the individual to the charity, apparently either missing or simply not caring about the point: since anything passing through the individual’s hands won’t be a QCD, the taxpayer can expect taxes to be withheld on that withdrawal and a 1099 from the IRA trustee the following year. Which of course was not the goal of the exercise.

Without the IRA trustees on board, call this another noble cause that will sputter along through 2007, then be retired to the tax history museum unless the provision is extended to all IRA holders young and old, broadened to give it more weight beyond tweaking the nuances of charitable contribution tax policy, and polished up in some way that will encourage IRA trustees to actually implement it. Just one blogger’s opinion.

August 25, 2006

States Immune from FMLA Self-Care Claims

Filed under: FMLA, Litigation — Fuguerre @ 3:07 pm

States are immune from claims brought under the self-care leave provision of the Family and Medical Leave Act, according to a 7th Circuit ruling reversing a district court decision. [Toeller v. Wisconsin Department of Corrections, 05-4064] Although the U.S. Supreme Court’s 2003 Hibbs decision had found that FMLA’s family-care provisions validly abrogated state immunity, the 7th joined 6th and 10th Circuit conclusions that FMLA’s self-care provisions are to be evaluated separately, versus reading Hibbs as applicable to FMLA in its entirety. Finding no justification that FMLA’s self-care provision trumps state immunity “pursuant to a valid grant of constitutional authority,” the 7th remands the case for dismissal.

August 24, 2006

Age Discrimination in Early Retirement Incentives

Filed under: ADEA, Pensions — Fuguerre @ 9:28 am

Earlier this week, the EEOC announced settlement of age discrimination allegations relating to an early retirement incentive program under which the employer “reduced the amount of the early retirement incentive payment for each year as the employee grew older.” [Stillwater School District to Pay $1.12 Million for Age Bias Against Class of Retired Employees, 8/21/06]

Such are the times I’m content to only be closely acquainted with actuarial matters as opposed to actually practicing that dark mysterious science. To my simplistic mathematical mind, offering a 55-year-old worker the same incentive to retire early as you’re offering one of your workers who has hung on in the workplace until 70 is quite meaningless: the septuagenarian will be out taking cruises with what the younger retiree needs to penny-pinch just to hang on until Social Security kicks in. Or from the employer’s perspective, age-neutral incentives simply are going to cost too much for the older workers to be of any value in encouraging retirement among the younger workers.

Now true, as the Employee Benefits section of the EEOC’s Compliance Manual points out in V.B.1., in general pension benefits cannot use ADEA’s equal cost defense, such as would be available to support similar cost justification arguments if we were dealing with retiree medical benefits or disability benefits. Even so, my aging rusted memory could have sworn that the natural age bais of early retirement incentive programs was openly acknowledged and accepted by Congress during 1990 enactment of the Older Workers Benefit Protection Act, that there was rather specific congressional intent enunciated somewhere that might have better illuminated OWBPA 103(1)’s addition of ADEA 4(f)(2)(B)(ii), stating, “It shall not be unlawful for an employer . . . to observe the terms of a bona fide employee benefit plan . . . that is a voluntary early retirement incentive plan consistent with the relevant purpose or purposes of this Act.” Whereas in 1990 it seemed completely evident and untouched by OWBPA that prevailing universal practice was for an early retirement incentive plan to grant those who would have longer periods of retirement a larger incentive than those with shorter periods — that is, essentially relating the value of the incentive to the period of expected retirement, rather than to the attained age of the worker — apparently “consistency” with OWBPA’s purpose is a fluid concept that may have lost its original intent.

So will early retirement incentive plans go the way of the dinosaurs, with employers less and less inclined to pay windfalls to the oldest workers just to be able to scrape together enough of an incentive to be anywhere near meaningful to younger ones in the targeted group? Perhaps not. Presumably the Stillwater settlement is not reversing anything in the Early Retirement Incentives section of the EEOC’s Compliance Manual, which among other potential defenses to an age discrimination claim does still accept an early retirement incentive that provides the “subsidized portion” offset (i.e., the portion of retirement benefit necessary to bring a retiree’s benefit up to an unreduced level) or that provides Social Security supplements, either of which would provide higher incentives to younger workers than to older workers. In fact, despite the general ban against applying cost justification to pension benefits, the EEOC Compliance Manual does offer employers the opportunity to attempt an equal cost demonstration of age-distinct incentives; although the EEOC opines that such a demonstration “is unlikely to be successful,” one might imagine an incentive package that includes a portion aimed at supporting retiree healthcare costs as a possible illustration of one that might stand the chance. Without additional details on the Stillwater incentives, it’s not clear where the employer went astray; but barring any EEOC shift not yet expressed in its Compliance Manual, traditional early incentive programs should not necessarily be threatened, even though younger workers will quite commonly receive significantly higher incentives under those traditional programs than their elder counterparts.

PPA Interest Rates for 2006 PBGC Variable Rate Premiums

Filed under: PBGC, Pensions — Fuguerre @ 7:26 am

Along with the extension of the pre-2006 corporate bond basis replacing the 30-year Treasury bond basis for valuation of current liabilities of a pension plan, the Pension Protection Act of 2006 similarly extended the corporate bond basis for the interest rate used to value vested benefits for purposes of the PBGC variable rate premium. [PPA §301(a)(3)] The Pension Benefit Guaranty Corporation has updated its page on Valuing vested benefits for PBGC variable rate to reflect the PPA provision. (Previously, these PPA rates had been available on the PBGC’s page for the 4010 temporary gateway test, which had waived 4010 reporting on the basis of the anticipated PPA rates.)

Note that although PPA §401(a) eliminates the full funding limit exemption of ERISA §4006(a)(3)(E)(iv) after 2007 (i.e., hitting the FFL in 2007 will not relieve you from the VRP in 2008), that exemption does remain intact for the 2006 and 2007 premium years.

August 23, 2006

Tenneco Freezes

Filed under: Pensions — Fuguerre @ 8:00 pm

Tenneco Inc. has decided to freeze its defined benefit plan for most U.S. salaried and non-union hourly employees, effective January 1, 2007, in exchange for higher contributions to its defined contribution plans. [8-K]

August 22, 2006

PPA and Plan Amendments

Filed under: Amendments, Pensions — Fuguerre @ 8:00 pm

The sweeping changes made by the the Pension Protection Act of 2006 (P.L. 109-280) will require numerous plan amendments, as well as encourage other plan changes to take advantage of new opportunities or to control new concerns. Of necessity, this post will represent only the start of my own process of tending to the plan amendment side of PPA, with much much more to come following in the months ahead, as will be noted in comments I’ll add to this post.

Remedial Amendment Deadlines – (1) EOY 2008: §415 Limit on Lump Sums. If a defined benefit plan requires remedial amendment in order to reflect the revision and permanent extension of the rule relating to the interest rate to be used for the §415 limit on lump sum cashouts and other distributions subject to §417(e), as prescribed by PPA §303, then the amendment must be adopted no later than the close of the 2008 plan year. See PPA §301(c). If the plan had not yet met the previously applicable EOY 2006 deadline of making the earlier applicable PFEA amendment (see the section titled “Pension Funding Equity Act of 2004” in Notice 2005-95), then the manner in which PPA §301(c) sets the new amendment deadline — by amending PFEA itself, as opposed to adding a new deadline — presumably should mean that the original deadline is now moot, even though technically the substance of the new PPA provision is different than under the original PFEA provision. In fact, if a plan had already adopted the PFEA amendment, then it will need to revisit the plan terms, so as to extend the rule beyond 2005 and to reflect the new aspects of the rule.

Note that the provision of PFEA being extended here requires the plan prior to amendment to have been operated as though the plan amendment had been in effect. A plan that has paid out any lump sum distribution during the early part of 2006 prior to PPA enactment may have technically violated this operational compliance rule if the §415 limit applied to the distribution amount, since the effect of the PPA provision in such instance would be to retroactively decrease the §415 ceiling, as previously discussed here. One presumes that forthcoming regulatory relief would not preclude plans in that predicament from access to the extended PFEA amendment deadline, provided that operational compliance has at all times been consistent with the relevant provision under the existing statute in effect at the time of the distribution.

(2) EOY 2009: All Other PPA Remedial Amendments for Non-Governmental Plans. For any other provision (other than for the §415 limit on lump sums) for any qualified plan other than a governmental plan, remedial amendments reflecting PPA requirements should be adopted no later than the close of the first plan year beginning on or after 1/1/2009. See PPA §1107 and the JCX-38-06 technical explanation.

In contrast with several PPA provisions, there is no delayed date provided under this amendment deadline for plans maintained under collective bargining agreements. In some instances, the delayed effective dates for collectively bargained plans for some PPA provisions could essentially collide with the absence of a comparable extension to the PPA amendment deadline, leaving little or no amendment relief. For instance, the PPA §1004 requirement that a plan offer an additional survivor annuity option offers up to one year of delay in the effective date for collectively bargained plans, so that the provision may not apply to the plan until the plan year beginning in 2009; but despite the additional year of delay in applicability of the provision, a plan amendment regarding that provision would be required by the close of that 2009 plan year. For a tighter illustration, new interest rate rules and vesting standards might not apply to a collectively bargained hybrid plan until 2010 under PPA §701(e)(4), although a technical correction might be required to sort out the tangle on that particular delay; but if so, then the plan amendment actually adopting those changes would need to be in effect upon the effective date, with no PPA amendment relief after that delayed effective date (nor before that effective date, as discussed below).

In order to be eligible for relief under PPA §1107 with respect to any particular PPA provision, the plan must be in operational compliance with the new requirement during the period beginning with the statutory or regulatory effective date of that requirement. Since PPA provisions have a rather extraordinary patchwork of effective dates, operational compliance may involve varying dates for actions to be taken by a plan.

Remedial plan amendments that meet the conditions of this PPA amendment deadline qualify for §411(d)(6) relief, except as to be provided by IRS regulations. For instance, one might expect to see restrictions on the extent of §411(d)(6) relief for certain aspects PPA’s change in the valuation basis for the floor on lump sum cashouts (see PPA §302), such as were previously imposed on similar changes made in prior legislation. Moreover, the JCT technical explantion anticipates IRS regulatory guidance that will preclude a plan from using PPA’s 411(d)(6) relief for a plan amendment that is not directly related to PPA provisions.

Furthermore, if remedial amendments satisfy the PPA conditions, then the plan is treated as being operated in compliance with plan terms during the period starting with the applicable statutory or regulatory effective date and ending with the amendment’s adoption (or with the close of the relief period, if earlier).

The JCT technical explanation states that PPA §1107’s rules for remedial amendment timing and relief are effective on the date of PPA enactment; but that effective date is not actually stated in PPA itelf. If remedial plan amendments are necessary with respect to any PPA provision that is retroactively effective prior to PPA enactment, the specific timing rules of PPA §1107 should extend relief to those plan amendments as well, provided IRS regulations grant suitable relief with respect to the PPA §1107 condition requiring operational compliance as of each provision’s effective date.

Conversely, the JCT explanation precludes from the scope of PPA §1107 any plan amendment adopted prior to the effective date of any particular PPA provision —

A plan amendment will not be considered to be pursuant to the bill (or applicable regulations) if it has an effective date before the effective date of the provision under the bill (or regulations) to which it relates. Similarly, the provision does not provide relief from the anticutback rule for periods prior to the effective date of the relevant provision (or regulations) or the plan amendment.

For a notable example on this point, return to the new rules for valuation of lump sum distributions referenced earlier in this post, as prescribed by PPA §302, which is not effective until plan years beginning on or after January 1, 2008. If a plan sponsor were to attempt to amend the plan to adopt those new lump sum valuation rules for any earlier plan year, then aside from the technical difficulty (if not impossibility) of doing so without having the new interest rates on hand, the relief offered by PPA §1107 would not be available to such a plan amendment. As discussed previously in this post, another illustration of this point might arise under the delayed effective date for the interest rate and vesting standards applicable to a collectively bargained hybrid plan: if those new rules take effect beginning with the 2010 plan year, then no amendment relief applies for such a plan for any pre-2010 periods, for instance were the plan to accelerate adoption of the new rules (e.g., in order to use the new interest rate rules versus the plan’s current basis, in which instance there could be potential 411(d)(6) implications).

(3) EOY 2011: All Other PPA Remedial Amendments for Governmental Plans. For any other provision (other than for the §415 limit on lump sums) for any governmental plan, remedial amendments reflecting PPA requirements should be adopted no later than the close of the first plan year beginning on or after 1/1/2011. Refer back to PPA §1107 and the JCX-38-06 technical explanation. Since governmental plans are exempt from IRC §411, PPA’s offer of §411(d)(6) relief is of no consequence, but governmental plan amendments that satisfy the PPA amendment conditions still benefit from the PPA relief that considers the plan to have been operated in compliance with plan terms for the applicable period between the effective date of a provision and the adoption of the remedial amendment.

(4) Or Earlier: Plan Termination. Long-standing requirements, most recently enunciated in Section 8 of Rev. Proc. 2005-66, have held that termination of a plan ends the plan’s remedial amendment period. PPA §1107 does not alter that rule: if a plan is terminated after the effective date of any particular PPA provision and prior to the end of the otherwise applicable PPA remedial amendment period, then the PPA amendment relief is still available for the period through plan termination, but only if a suitable retroactive remedial amendment is adopted in connection with the termination of the plan.

Or later . . . since now that we’ve brought up Rev. Proc. 2005-66, surely you know what question we now raise:

What Cycle Are You On? If you have a plan on Cycle D or E under Section 12 of Rev. Proc. 2005-66, then your initial EGTRRA remedial amendment period ends after the main PPA remedial amendment period described under subsection (2) of this post. So, would we not expect the IRS to quite quickly extend the PPA remedial amendment period, since it’s rather unlikely we might be forced to adopt PPA remedial amendments before the close of the EGTRRA remedial amendment period? How about: PPA remedial amendment period extended through the close of the second remedial amendment cycle? That’s probably way too lenient to expect, except perhaps for plans on Cycles A and B, whose initial EGTRRA remedial amendment cycle ends before the main PPA remedial amendment period. We eagerly await IRS guidance to tell us how to have PPA jump on the fast-moving amendment merry-go-round.

Disqualifying Provisions. And then I’ll close out my first segment on PPA amendments by pointing back in the direction of Section 5 of Rev. Proc. 2005-66, using its guidance as the backdrop to the new entry on my task list: “Segregate those provisions of PPA that give rise to disqualifying provisions, versus those where plan amendments would not be characterized as relating to a disqualifying provision.” Toward future posting.

August 19, 2006

State’s Healthcare Assignment Law Not Preempted

Filed under: ERISA Preemption, Healthcare, Litigation — Fuguerre @ 10:07 am

As is often the case, congressional silence whispers sweet nothings in the ears of both parties.

Unconvinced by the whispers of health insurers, the 5th Circuit has affirmed a district ruling that Louisiana law relating to assignment of healthcare benefits is not preempted by ERISA. [Louisiana Health Service & Indemnity Co. v. Rapides Healthcare System, 04-31114]

Louisiana state law requires an insurance company to honor assignments of healthcare benefit claims made by patients to hospitals. A provision under the insurer’s agreement with “participating providers” allowed direct payment to a healthcare provider; but payments for services from a “nonparticipating provider” were made solely to the patient, regardless of any assignment to the healthcare provider. When hospitals took noncompliance with the state’s assignment statute up with the Louisiana Department of Insurance, the insurers went to court seeking a declaration that the state law was preempted to the extent applicable to ERISA employee welfare benefit plans.

The appellate court first disagreed with the district court on weight given to language in the healthcare plans stating that assignments were not to be honored “except as required by law.” The insurers contested the district court conclusion that that plan provision required compliance with the state assignment law, arguing that plan provision to be trumped by another stating “except when preempted by federal law.” The appellate court disagreed with both sides, instructing —

Neither policy provision displaces the preemption analysis in this case. ERISA plans must always conform to state law, but only state law that is valid and not preempted by ERISA. The presence of the phrase “except as [sic] preempted by [federal] law” serves no additional purpose, as all state laws are potentially subject to ERISA’s preemptive force. The two provisions do not forestall determination of the preemption question.

Turning to the central issue of ERISA preemption, the court rejected the insurer’s contention that the state’s assignment statute conflicts with ERISA’s exclusive enforcement scheme, pointing out —

ERISA is silent on the assignability of employee welfare benefits; it neither prohibits nor mandates recognition of assignments.

Moreover, the state’s assignment statute does not create additional enforcement mechanisms that duplicate otherwise applicable ERISA duties. To insurer concerns that compliance with the assignment statute poses risks of double recovery through liability to a hospital after a patient had already been paid, the court responded that assignments simply ought not be ignored, observing —

Failure to follow the law cannot create preemption concerns.

As to the issue of whether the state assignment law is preempted because it “relate[s] to” employee benefit plans, the court heard from the opposing parties two contrasting interpretations of the whisperings gleaned from congressional silence regarding assignment of employee welfare benefits: from the insurers, that the issue is to be left to free negotiations of the contracting parties; from the hospitals, that ERISA is not to preclude state law on the issue. On this debate the 5th Circuit parted company with the 8th and 10th Circuits to side with the hospitals, rejecting insurer arguments that the assignment law imposes a set of rules requiring benefit payments in contravention of plan documents and impermissibly interferes with nationally uniform plan administrator. Viewing contrary precedent as uninformed by the “starting assumption that Congress did not intended [sic] to preempt state law in an area of traditional state regulation,” the court stood convinced that Louisiana’s assignment statute has no impermissible connection with ERISA plans.

Congressional silence cannot dictate our conclusion in this case, but we consider what Congress did in order to determine what Congress intended to preclude the states from doing.

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