Benefits February 24, 2004

MI, VT Drug Partnership Squashed by Washington

February 24, 2004 (PLANSPONSOR.com) - It looks like the Detroit Tigers have a better chance of going to the World Series in 2004 than Michigan and Vermont's program to jointly negotiate lower prescription drug prices from pharmaceutical companies has of being approved by Washington.
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Michigan Governor Jennifer Granholm said she was informed late last week that the Centers for Medicare and Medicaid Services was rejecting the program as a violation of federal procurement procedures. This came as a shock to the Democratic governor currently attending the National Governors Association meeting in Washington, who expected more support from a Bush administration that encouraged states to cut drug costs, according to an Associated Press report.

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“We are just enormously frustrated at the lack of partnership Washington has been providing,” Granholm told the Associated Press. Overall, Michigan spends $600 million a year on Medicaid prescriptions.

Under the partnership, the states were given a rebate on prescription drug purchases of about 5% that was on top of the roughly 20% discount manufacturers provide to Medicaid programs. Michigan estimates savings on drug costs reached about $40 million in 2003, including $8 million from multistate bargaining. Yet with the uncertainty surrounding Washington’s disapproval, neither Michigan nor Vermont officials know whether they will be allowed to collect on the discounts they’re owed if the program should end.

Word of the apparent rejection of the joint programs was news toMary Kahn, a spokeswoman for the federal agency. Kahn said that as of yet, there had been no official response and that the program was still under review.

Compliance February 23, 2004

Big Blue to Take Up Cash Balance Comp Ruling

February 23, 2004 (PLANSPONSOR.com) - IBM has vowed to ask a federal appeals court to review a lower court ruling that it must compensate workers and retirees over its cash balance pension plan conversion - a ruling that could cost it billions of dollars.
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This most recent ruling last week, US District Judge G. Patrick Murphy said 140,000 IBM employees and retirees were entitled to compensation for retirement benefits they lost when IBM shifted to a cash-balance plan from its traditional pension, Reuters reported (See  IBM Cash Balance Judge: Plaintiffs Due Retroactive Benefits ).

IBM and lawyers for the plaintiffs will meet in a hearing Monday to talk about how to determine the prospective payments to the employees and retirees who were affected by the pension changes. The amount of that potential compensation is still undecided, IBM spokesman Kendra Collins said. But in court documents filed in December, IBM had said that based on one scenario proposed by the plaintiffs, it could be forced to pay up to $6 billion.

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Armonk, New York-based IBM, the world’s largest computer company, disputes Murphy’s initial court ruling in July 2003 that it had discriminated against older workers and retirees by its cash balance changes

The case is being watched because of its potential implications for other major corporations where employees have complained that pension and health care benefits were reduced in corporate cost-cutting moves. Companies in addition to IBM that moved to “cash-balance” pension plans in the 1990s include Eastman Kodak Co. and Electronic Data Systems Corp.

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