H.R. 2830 retirement income security bill to be voted on next week

The House Ways and Means Committee has reported out a retirement income security bill, the Pension Protection Act (H.R. 2830), which is based on the bill that was reported out of the House Education and the Workforce Committee in June. The bill in large part provides defined benefit funding reforms. Ways and Means Committee Chairman Bill Thomas (R-CA) added a number of defined contribution plan and health related provisions to the bill, including the combination annuity/long-term care product proposal drafted by the insurance industry at the behest of the Chairman. In addition, the bill contains provisions making the EGTRRA contribution limits permanent, makes permanent the Saver's Credit, allows a $500 annual flexible spending account (FSA) rollover and adds an automatic enrollment provision. The House leadership has indicated its intention to move the pension bill to the floor for a vote as expeditiously as possible, perhaps as early as next week.

The Pension Security and Transparency Act (S. 1783) is the comprehensive Senate pension funding reform bill where the current impasse between Senators DeWine (R-OH) and Mikulski (D-MD) with the Chairs and Ranking Members of the Senate Finance and HELP Committees may be resolved in the near future, paving the way for the compromise Senate bill that was agreed to by those Chairs and Ranking Members to be brought to the Senate floor for a vote, perhaps also during the week of November 14th. If both houses vote on the pension bill next week, there is a strong chance that a pension bill may be enacted before the end of the year.

Industry fear of the fiduciary provision under "safest available annuity" has been mitigated by industry input into the wording of that provision. The Senate bill includes the clarification of Indian tribal government plans as governmental plans under ERISA and the Tax Code.

DETAIL

On November 9, the House of Representatives Ways and Means Committee approved the Chairman’s mark of the Pension Protection Act (H.R. 2830) by a vote of 23 to 17. (The vote generally followed party lines, with Representative Paul Ryan (R-WI) the only Republican voting against the bill.) H.R. 2830 is the comprehensive pension funding reform legislation introduced by Representative John Boehner (R-OH) and previously approved by the House Education and the Workforce Committee, which he chairs, on June 30.

The chairman’s mark, a substitute prepared by Committee Chairman Bill Thomas (R-CA), made a number of modifications to the bill as previously approved. Most notably, the effective date has been changed so that the current-law temporary funding rules will be used through 2006 and new rules would become effective in 2007. The folowing are the key defined benefit plan provisions in the bill:
Defined Benefit Plan Reforms H.R. 2830 still provides defined benefit pension plan reforms such as: extensive reforms of the funding rules for multiemployer and single-employer defined benefit pension plans a five-year phase-in of the new 100 percent funding target; linkage of the interest rate to 3-year smoothing;
use of funded status, rather than credit rating, for determining at-risk liability; use of credit balances under limited circumstances;
additional rules for multiemployer plans with special rules for endangered plans; prospective clarification with respect to the application of the age discrimination rules to hybrid plans;
expanded disclosure requirements; and relief under certain circumstances from the new mandated RP-2000 combined mortality tables.

The chairman's mark also includes a provision that would allow pension plans to make distributions to a participant who has attained age 62 but has not yet separated from employment.

Defined Contribution Plan Reforms

The chairman's mark includes additional provisions for defined contribution plans, including a permanent extension of the increased contribution limits as enacted by EGTRRA in 2001, including the saver's credit, the combination annuity/long-term care product proposal that the insurance industry developed in response to the Chairman's request, and a safe harbor allowing for automatic enrollment. The chairman's mark did not address default investments or the ERISA preemption from state withholding rules. (These provisions were not within the jurisdiction of the Ways and Means Committee and could be added prior to consideration by the full House.) As originally contained in H.R. 2830, the chairman's mark also includes an exception to the prohibited transaction rules for investment advice.

The committee approved an amendment offered by Rep. Ben Cardin (D-MD) that would permit IRA rollovers to non-spouse beneficiaries.
Cardin withdrew a separate amendment regarding automatic enrollment since it addressed ERISA issues; Rep. Sam Johnson (R-TX), also a member of the House Education and the Workforce Committee – which has jurisdiction over ERISA issues – pledged to work with Cardin on his amendment.
A third amendment by Cardin regarding the Saver's Credit (from the 2001 tax bill) was partially accepted; the committee approved a provision allowing the Saver's Credit to be directly deposited into a savings account. The committee rejected a provision to make the Saver's Credit refundable.
Rep. Phil English (R-PA) offered and then withdrew an amendment providing a one-time increase in monthly payments for beneficiaries whose plans have been assumed by the Pension Benefit Guaranty Corporation for longer than ten years.
Rep. Stephanie Tubbs Jones (D-OH) offered and then withdrew an amendment that would have clarified the legitimacy of cash balance plans with respect to existing plans as well as those created in the future. Her amendment would also have prohibited "wearaway" of normal and early-retirement benefits and would have given participants with at least ten years of service or within five years of retirement the option of having their benefits calculated under the terms of the prior plan in cases of cash balance conversions.
A Democratic substitute of the bill, details of which were not immediately available, was defeated by a vote of 24-16.

Jones amendment, I think it will screw the employees. Looks like it will still allow for 'wearaway' and no protection for employees being forced into cash-balance plans.

and "wear away" is now being practiced in regular defined benefit plans (you install a new formula that is half of the old - and you get the greater of the old plan/old pay benefit and the new plan benefit - a technique that has been around forever I realize, but with the "modern" anti-discrimination tests being so easy to meet, it has exploded).

Of course there is no answer to the comeback by the GOP that if no weakening of plans, the companies would just drop defined benefit and tell folks to save more.