Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.
The Regulatory Systems for Employee Benefits
Brian A. Benko*
In 2000, the late Michael S. Gordon, who has been hailed as one of the architects of the Employee Retirement Income Security Act of 1974 (ERISA), wrote a piece entitled ERISA in the 21st Century. In his article, Mr. Gordon identified three issues that may affect the key assumptions underlying ERISA’s regulatory approach. The three trends were: (1) the challenges to Social Security and the traditional defined benefit system, (2) health insurance reform, and (3) the increase in ERISA litigation. He wrote that the value structure used by those who drafted ERISA was the best able to address these issues. The value structure of which he wrote was a form of functionalism—“an approach that emphasizes pragmatic rather than theoretical concerns.”
In the ten years since Mr. Gordon’s article was published, these three issues have remained generally unabated. All the while, experts have offered solutions. The particular solutions offered depend on how the issues are framed and what ends are pursued. As a consequence, experts have adopted polarizing theories of the best method to ensure retirement savings and healthcare security. Some hope for change because they believe that the current system is broken. Others, however, fear change because they believe that the system is not broken and that the solutions being offered offend the very principles on which this republic was founded. The distinction between hope and fear is driven by philosophical and political differences. Regardless of which side prevails, there is reason for hope, and none for fear, because employee benefits law, by its nature, is constantly evolving.
Employee benefits law is the compendium of responses to the human experience...
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Developing a systematic explanation of employee benefits requires a several-step analysis. The first step in the analysis is to explain the historical developments of employee benefits. Part II reviews the development of employee benefits law...
With an understanding of the historical development of employee benefits, employee benefits law can be explained as a system of laws. Part III explains the system and deems it the “overlapping system of laws.” The overlapping system of laws uses tax law and labor law to create a cohesive body of laws. All of the rules under tax law and labor law can be categorized into two types of rules: the “incentive formulation” and the “sanction formulation.” Tax law and labor law work together through the use of incentives and sanctions, fostering a system that encourages the provision of benefits and protects the rights of the actors within the system.
The explanation of the regulatory system is helpful, but the system needs to be explained in terms of how it affects the participants. Part IV explains the impact of the regulatory system on the motivations and conduct of employers, employees, and other actors in the benefits system. The regulatory system affects the relationships between the parties at two different levels: plan formation and plan operation.
In addition to explaining the effect of new laws, the regulatory system can be used to help guide the development of the law. At these two levels, the acts of Congress impact the regulatory system. Part V provides an analytical framework for using the regulatory system to help create the benefits law of tomorrow. Finally, Part VI is a brief conclusion.
This Article does not pontificate on how Congress should change the law. Nearly every article does so. What this Article offers is an explanation of the regulatory system for employee benefits as a means of understanding, and a method for analyzing, this complicated area of law.
*Associate, McDermott Will & Emery LLP, Washington, D.C.