Senate Committees Pass 401(k) Bills

Tax-News.com, Washington

25 March 2002

Last week in Washington post-Enron bills to protect workers with 401(k) plans passed committee votes in both houses of Congress.

The US House Committee on Education & the Workforce approved the Pension Security Act (H.R. 3762), the House version of President Bush’s plan to protect worker 401(k) plans, by a bipartisan vote of 28 to 19. The legislation includes new options to help workers preserve and enhance their retirement security, and insists on greater accountability from company insiders.

Democrat Reps. David Wu (D-OR) and Carolyn McCarthy (D-NY) joined 26 Republicans in voting to approve the bill, authored by House Education & the Workforce Committee chairman John Boehner (R-OH) and Employer-Employer Relations Subcommittee chairman Sam Johnson (R-TX) and co-sponsored by Rep. Baron Hill (D-IN).

“American workers deserve the security of knowing their savings will be there for them when they retire,” Boehner said. “Congress needs to fix outdated pension laws that deny workers the ability to protect and enhance their retirement savings. Rank-and-file workers should have the same freedom and protections that senior company insiders have when it comes to protecting their investments.”

The Pension Security Act would bar senior company insiders from selling their own stock during “blackout” periods when rank-and-file workers are unable to make changes to their retirement accounts, and clarify that employers have a fiduciary responsibility for the security of workers’ investments during such times. Workers would also receive more freedom to diversify their investments, much greater access to high quality investment advice, 30-day advance notice before blackout periods, more information about their pensions, and other tools they can use to maximize the potential of their 401(k) plans and ensure a secure retirement future.

The bill includes a measure already approved by the House with strong bipartisan support -- the Retirement Security Advice Act (H.R. 2269), which encourages employers to make investment advice available to employees as a benefit. Senior executives typically have access to professional investment advice regarding their retirement savings, but rank-and-file employees do not.

The alternate bill offered in the Senate by Sens. Jeff Bingaman (D-NM) and Edward Kennedy (D-MA) passed the Democrat-led Senate Education and Labor Committee by 11-10, rejecting several Republican amendments that had sought to weaken provisions that are opposed by business groups.

The legislation would, among other things, require employers with 401(k) retirement plans to choose to issue company stock as a "match" to worker contributions or to offer company stock as an investment option, but usually not both.

Many companies prefer to contribute stock rather than cash since it is cheaper and offers tax advantages. Many Enron employees saw their retirement savings, heavily weighted in company stock, evaporate as the stock price fell. The bill would also strengthen workers' ability to sue employers and require companies to have equal numbers of workers and executives serve as plan trustees.

Business groups said they plan to lobby members of that committee as well as other moderate Democrats to secure a more moderate Senate bill. The Kennedy bill is "an overbroad restructuring of the 401(k) system that's unnecessary and unproductive," said James Delaplane, vice president of retirement policy for the American Benefits Council, which represents large companies on employee-benefit issues.

Highlights of the House bill, which unlike the Senate bill is now very likely to pass on the floor, are as follows:

Clarifying the Fiduciary Duty of Employers. The bill clarifies that companies have a fiduciary responsibility for workers’ investments during a blackout period. Under current law, employers are not responsible for the results of workers’ investment decisions. This “safe harbor” from liability will no longer apply during a blackout period. Under the Pension Security Act, employers will be responsible for the consequences of the workers’ inability to control their investments if they violate their fiduciary duty to act in the interests of the workers during blackout periods.

Giving Workers Freedom To Diversify. The bill gives employees gives employers the option of allowing workers to sell their company stock three years after receiving it in their 401(k) plan.

Giving Workers Better Information About Their Pensions. The measure requires companies to give workers quarterly benefit statements that include information about accounts, including the value of their assets, their rights to diversify, and the importance of maintaining a diversified portfolio. Under current law, the reports are due annually and they do not require as much information, particularly the need for a diversified portfolio. (The bill allows the Labor Secretary to tailor this requirement to meet the needs of small business plans.)

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