EBSA, PBGC Issue Final Rules Addressing Pension Plans

Posted on November 17, 2009 by Jay Sumner

Both the Department of Labor’s Employee Benefits Security Administration (EBSA) and the Pension Benefit Guaranty Corporation (PBGC) have issued final rules published in today’s Federal Register that affect employer-provided pension plans. The EBSA’s final rule (pdf) delays until May 17, 2010 the effective and applicability dates of final rules under the Employee Retirement Income Security Act (ERISA) and parallel provisions in the Internal Revenue Code (IRC) dealing with the provision of investment advice to participants and beneficiaries in individual account plans such as 401(k)s and individual retirement accounts (IRAs). The rules, which were issued during the final days of the Bush administration, would have permitted advisers affiliated with mutual funds, brokerage firms and other companies that sell investments to provide investment advice to 401(k) and IRA participants. EBSA’s Assistant Secretary Phyllis C. Borzi has already announced that the agency plans to withdraw and rework this rule, which would have gone into effect on November 18. On January 20, 2009, Chief of Staff Rahm Emanuel directed agency heads to consider delaying any rule that had not yet taken effect to give the new administration a chance to review the law and policy involved.

Meanwhile, the PBGC has also published a final rule (pdf) that will make it easier for a member of the military to qualify for pension benefits. Under current PBGC regulations, benefits under a terminated single-employer pension plan are guaranteed only if the participant satisfies the conditions for entitlement to that benefit on or before the plan’s termination date. The Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA) entitles military service members to return to their jobs after deployment and to receive credit for benefits, including employee pension plan benefits, that would have accrued during their military-related absence. The new PBGC rule address the scenario that occurs when a service member’s plan terminates while he or she is deployed. Under the new rule, the PBGC will consider the service member to have satisfied the conditions for benefits entitlement as of the plan’s termination date, so long as the service member is reemployed within the time limits set by USERRA. In other words, the rule will treat returning service members as if they had never left their employers at the time the plan terminates.

Photo credit: Kameleon007
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House Committee Approves Fee Disclosure and Investment Advice Bill

Posted on June 26, 2009 by Jay Sumner

By a vote of 29 to 17, the House Committee on Education and Labor on June 24 approved a bill that would mandate certain 401(k) fee disclosure requirements, and require that investment advice provided to employees regarding employer-sponsored retirement plans be independent and free of any conflict of interest. The 401(k) Fair Disclosure and Pension Security Act of 2009 (H.R. 2989) combines provisions of two other bills that were approved by the House Education and Labor’s Subcommittee on Health, Employment, Pensions and Labor on June 17 by votes of 13 to 8 along party lines. Those two bills are the 401(k) Fair Disclosure for Retirement Security Act (H.R. 1984) sponsored by Rep. George Miller (D-CA) and the Conflicted Advice Prohibition Act (H.R. 1988) sponsored by Rep. Robert Andrews (D-NJ).

According to a press release issued by the House Committee, H.R. 2989 would do the following:

  • Require 401(k) plans to disclose fees in one dollar figure taken from participants’ accounts in a worker’s quarterly statement;
  • Require 401(k) service providers and plan administrators to disclose fees charged to 401(k) plan accounts broken down into four categories: administrative fees, investment management fees, transaction fees, and other fees;
  • Provide basic investment information to employees, including information on risk, return, and investment objectives;
  • Require plan administrators to offer at least one low-cost index fund to plan participants in order to allow participants to protect themselves against liability for participants’ investment losses;
  • Require service providers to disclose financial relationships so companies that sponsor 401(k) plans can be made aware of conflicts of interest;
  • Ensure that if workers are provided with investment advice by their employers, that the advice be based on the workers’ needs – not the financial interest of those providing the advice;
  • Provide adjustments to pension funding rules to ensure plans can weather the economic crisis without being forced to choose between cutting jobs or freezing plans;
  • Give the Department of Labor the authority to enforce these disclosure rules and impose fines if a service provider is in violation of these rules.

It is anticipated – but not certain – that this bill will next be considered by the House Ways and Means Committee before it is put to a full House vote. Stay tuned for any new developments.
 
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