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Letters to the 107th Congress

September 9, 2002

The Honorable William M. Thomas
Committee on Ways and Means
U.S. House of Representatives
Washington, D.C. 20515

The Honorable Charles B. Rangel
Ranking Member
Committee on Ways and Means
U.S. House of Representatives
Washington, D.C. 20515

Subject: H.R. 1434, Section 120 Group Legal Services

Dear Mr. Chairman and Representative Rangel:

The American Bar Association, with more than 410,000 members, strongly supports H.R. 1434. This legislation would reinstate and make permanent Section 120 of the Internal Revenue Code concerning the tax treatment of employer-paid legal services plans. We urge you to work with your colleagues on the Ways and Means Committee to ensure that H.R. 1434 is included in whatever appropriate legislative vehicle is reported out of Committee during the 107th Congress.

It is vital that the Committee act now to reinstate Section 120. This provision encourages employers to provide legal services benefits for employees and their families by putting the benefit back on the same footing as other employer-paid benefits. Since Section 120 expired in 1992, the number of employers, especially small businesses, offering this important benefit has remained stagnant, because of the tax consequences and the administrative burden. The ABA supports the enactment of this legislation for many reasons, including the following:

Group legal plans are important to maintaining confidence in our justice system and the rule of law. The ABA has long supported prepaid legal services plans as a way to increase access to the justice system for low- and middle-income Americans. These plans allow individuals and families to address legal issues before they become significant problems, reducing demands on already overburdened court systems and instilling confidence in our justice system. In a nation based on the rule of law, access to quality legal services by and the delivery of those services to all Americans -- not just those who can afford a lawyer -- is vital.

Group legal plans efficiently and inexpensively provide legal services to low and middle income Americans. The ABA's support for prepaid legal services plans is based on over 30 years of study and experimentation with group and prepaid legal services plans of all types. Group prepaid legal services plans have an established record of being able to deliver personal legal services in an organized and efficient manner. For an average annual employer contribution of less than $150, employees are able to utilize a wide range of lawyer services often worth hundreds or even thousands of dollars, which otherwise would be beyond their means.

Group legal plans are important to employers. A typical plan costs less than $150 per year per employee. Yet current administrative and tax burdens discourage employers, especially small business owners, from adding this low-cost benefit to their benefit package. In fact, for small business owners there are disproportionately large administrative expenses associated with the non-preferred status of legal services benefits. Small business owners would substantially benefit from the enactment of S.654; the plans increase productivity by enabling workers to resolve legal difficulties early on before they become more complex, time consuming and expensive, allowing employees to focus on their jobs.

Group legal plans are important to employees. Low and moderate-income workers especially need access to preventive legal advice. Group legal services plans provide employees with low-cost, basic legal services including assistance with the purchase of a home, preparation of a will and guardianship documents, probate services, and resolution of domestic difficulties (including, very importantly, the collection of child support.) As a result of the 9/11 national tragedy, Americans are more aware than ever of the need for legal advice to plan for their families' future and financial well being. In addition, the recent corporate scandals and the uncertainty in the financial markets have highlighted the need for a lawyer's assistance in determining the legitimacy of investment options.

Group legal services help ease the burden on overtaxed government programs. Group legal services plans help reduce demand on overburdened government programs at the Federal, State and local levels. People who are unable to resolve their problems privately are more likely to require public social services programs. For example, a mother who is able to work with her own lawyer to enforce child support payments would not require the assistance of the court system to do so, and would not require public assistance while waiting for the payments to be collected. In addition, many lower income workers may also qualify for legal aid supported by the woefully underfunded Legal Services Corporation. The ABA strongly supports the expansion of group legal services plans to help address the basic legal needs of the working poor. Shifting part of the government's responsibility of guaranteeing "access to justice for all" to group legal plans will help ensure that the working poor will not be left out of the justice system because of a lack of resources.

The ABA urges Congress to reinstate Section 120 by enacting H.R. 1434. Thank you very much for your consideration.


Alfred P. Carlton, Jr.
President, American Bar Association

cc: Members of the Committee

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