Rule Threatens Health Benefits, Bentsen Says

Many workers may lose their health benefits if Congress and the Treasury Department do not quickly simplify the tax rules on employee benefits, Senate Finance Committee Chairman Lloyd Bentsen said today.

Because of public pressure, the Treasury Department has delayed until Oct. 1 the enforcement of rules that force all companies to meet complex tests to show that lower-paid workers receive tax-exempt health insurance benefits equal to those given highly paid employees.

If a company benefit plan is found to favor the highest-paid employees, all workers would have to pay income tax on the value of the benefits. The rules, known as Section 89, were set to take effect July 1.

“Section 89 has even caused some to consider shutting down their employee health and life insurance plans completely,” Bentsen said at a hearing on the issue.

“Major surgery is needed. It is needed quickly. And I’ll be introducing legislation to make these rules work,” the Texas Democrat said. Bentsen asked the Treasury Department to come up with a recommendation soon.

The government is considering ways to change the benefits law and make the rules simpler, said Dana Trier, a Treasury Department tax law counsel. One part of the solution might be to set an alternative test for small businesses, he said.

“The penalty, which under today’s rule falls on the innocent, really does have to be changed,” Trier said.