"Change" was the watchword of the presidential
election, and change, whether intended or not, is likely to
come to the retirement benefits industry in 2009 as a
result of the ongoing crisis in the financial markets.
Given this turmoil, and the control Democrats will have in
the Senate, House, and 1600 Pennsylvania Avenue, the
pathway to implementing change should be easier. We survey
some of the possibilities below.
While changing the U.S. retirement system was not a
high-profile issue in the election (as opposed to
health-care reform), the Obama-Biden campaign's
signature proposal was a mandatory payroll-deduction IRA
program for employers that do not offer a qualified
retirement plan (See
IMHO: Their Own
The program would require automatic enrollment and
default investment of deferrals; employees could opt out in
writing, or continue to participate. Advocates argue that
such programs would increase participation (the Obama
campaign estimated that participation among low- and
middle-income employees would increase from 15% to 80%) and
reduce the cost barrier perceived to prevent many small
employers from offering retirement plans.
Such programs, however, may create a disincentive to
establish or maintain qualified plans, which are much more
complex and expensive than IRAs. An employer-sponsored plan
provides participants with oversight of investment options
and service providersÂ by a fiduciary held to strict legal
standards of prudence and loyalty and, often, employer
matching contributions and plan-provided participant
education or investment advice. IRA holders receive none of
these benefits. The question is what effect an expansion of
IRAs will have on the continued viability of our
employer-based retirement system.
Lawmakers on Capitol Hill have been negotiating relief
for defined benefit pension plans from the funding
requirements instituted by the Pension Protection Act of
2006 (PPA). The meltdown in the financial and credit
markets may cause many otherwise healthy plans to fall
within the PPA's provisions, potentially triggering
notices to participants and restrictions on distributions,
among other things.
Current proposals would permit pension plans to smooth
out unexpected asset losses and ease the application of the
new funding rules by providing transitional relief for
plans at and below the phased-in funding threshold (92% for
2008, 94% for 2009), and permit plan sponsors to elect to
freeze temporarily the status of an endangered or critical
plan at the same funding status held in the immediately
preceding plan year (See
Study Suggests More
Pension Funding Help Needed
With the anxiety level among American workers at
record-high levels, the possibility that workers' lump-sum
benefits may be restricted will not be received warmly.
Hopefully, this legislation will remove the restrictions on
lump-sum payments. It does not look as if this legislation
will be enacted this year.