Cantwell Introduces Bipartisan Bill to Protect Health Benefits for 55,000 Washingtonians

Bill makes technical fix to ensure equitable treatment for all public sector employees

WASHINGTON, D.C. – Today, U.S. Senator Maria Cantwell (D-WA) joined Senator Mike Crapo (R-ID) in introducing bipartisan legislation that would eliminate an inequity that is preventing tens of thousands of state public employees from passing on their hard-earned health reimbursement savings to their loved ones once they pass away. Senator Patty Murray (D-WA) cosponsored the legislation.

The legislation would make a technical fix to laws governing health reimbursement arrangements provided to governmental employees in order to ensure equitable treatment for all public sector employees. Currently, only employees and retirees of state-run public retirement systems receive this benefit, but employees and retirees of political subdivisions are excluded. These include counties, cities, ports, public utility districts (PUDs), and school districts.

In Washington state, approximately 55,000 participating employees and 600 employers would benefit from this fix. In the Pacific Northwest (Washington, Oregon and Idaho), 776 employers and nearly 80,000 employees would benefit. Nationwide, more than half a million employees would benefit.

“This bill will protect the health benefits that thousands of hardworking Washingtonians have earned over their careers,” Cantwell said. “Employees holding health reimbursement plans offered by the City of Vancouver, the Richland School District, the Port of Kennewick, and Pierce County, to name a few, are at risk of not being able to pass on their health savings due to this inequity. I am introducing this technical fix to correct an unintended consequence of past legislation that is putting at risk thousands of Washingtonians’ hard-earned benefits within this key retiree medical savings tool.”

At issue are health reimbursement arrangements (HRAs) provided by voluntary employees’ beneficiary association (VEBA) trusts, plans which are widely used – particularly throughout the Pacific Northwest – to provide health benefits to employees and retirees of state-run public retirement systems as well as political subdivisions, including counties, cities, ports, PUDs, and school districts. Funds that accumulate within HRAs can be transferred to a designated beneficiary upon the death of the plan’s primary beneficiary.

However, currently only participants with HRAs offered through state-run public retirement systems can pass their health savings to non-dependent beneficiaries after a participant’s death; participants with HRAs established by or on behalf of a political subdivision cannot. The Cantwell-Crapo bill would correct this inequity and ensure equitable treatment for all public sector employees.

In 2006, the Internal Revenue Service issued a ruling (2006-36) prohibiting public sector employers from allowing their employees to transfer their VEBA assets to non-dependent beneficiaries. Essentially, without a spouse or dependent when a participant dies, all hard-earned benefits would be lost. To correct this, in 2008, Congress passed the Worker, Retiree, and Employer Recovery Act of 2008 (HR 7327). This legislation addressed the situation for certain HRA plans, including those created in conjunction with state-run public retirement systems, but not for those established by or on behalf of a political subdivision – which impacts approximately 55,000 Washington employees. Cantwell’s legislation would fix this inequity.

“The introduction of this important bill will ensure that we are able to recruit and retain the best employees available by offering them health care benefits that match the private sector,” said Ron Speer, District Manager of the Soos Creek Water and Sewer District serving almost 100,000 people in southeast King County. “Some of Soos Creek’s employees have built up six-figure VEBA accounts to pay for their health care and those of their adult children, as had been permitted when they entered the program. Revenue ruling 2006-36 changed the game and disallowed a practice that had taken place for almost 20 years. This legislation would eliminate that inequity.”

Said Dr. Polly Crowley, Superintendent of the West Valley School District in Spokane: “As Superintendent of West Valley School District and a Board Member of the VEBA Trust for school districts, I can tell you that this legislation will benefit not only my district in Spokane but 278 school districts and educational entities throughout Washington State.”

“We appreciate our Senators help by introducing this bill,” said Jim Sanders, General Manager of the Benton County PUD in Kennewick. “It provides a technical fix that will allow our employees more flexibility in designating beneficiaries for their HRA.  This important health care savings tool gives our employees the opportunity to save now to pay for the high cost of medical insurance when they retire.”

Click herefor a complete list of supporters in Washington, Idaho and Oregon.