Cardin, Portman Weigh In Again

February 4, 2002 (PLANSPONSOR.com) - Pension reform's champions have teamed up again - this time with a bill that purports to offer participants greater latitude in managing their retirement plans.

In response to some of the apparent problems experienced by participants in the Enron plan, Representatives Ben Cardin (D-Maryland) and Rob Portman (R-Ohio) will today introduce the Employee Retirement Savings Bill of Rights (ERSBR).  While the bill has much in common with the pension proposal put forth by President Bush on Friday, it also carries some of those changes further than the President’s initial proposal. 

As in the President’s proposal, the Cardin/Portman version would allow workers to transfer matching employer contributions from company stock once they have attained three years of service with their employer.  The Cardin/Portman goes further in specifically identifying non-elective contribution accounts – employer contributions that are not matching contributions – and applying a slightly longer five-year service requirement to the ability of workers to diversify those contributions.

ESOP Included

The Cardin/Portman version specifically includes Employee Stock Ownership Plans (ESOPs), as well as 401(k) plans.  The President’s proposal has not specifically noted which type of plans would be subject to the proposed changes, though Assistant Secretary of Labor Ann Combs has said that it would only be applied to 401(k)s and so-called K-SOP arrangements, where an ESOP has been joined with a 401(k) program. 

ESOPs, which are specifically designed to provide for a primary investment in employer stock, currently must only allow participants an opportunity to diversify after they attain age 55 and have 10 years of participation in the plan.

Another key distinction – the Cardin/Portman proposal explicitly acknowledges that the new stock diversification rights would be phased in – to ‘avoid adverse effects on stock prices.’

Week’s Worth?

Another area of overlap is in the notice requirement of a ‘blackout’ period – those periods when plans are changing recordkeepers and during which participants may, for a limited period of time, be unable to access their accounts.  Cardin/Portman calls for a 21-day notice prior to such period, while the President has called for a 30-day notice period. 

Both Cardin/Portman and the President’s proposal call for specific participant communications regarding general investment information, including the importance of diversification.  The Cardin/Portman proposal calls for such notice to be delivered at the time of enrollment, and annually thereafter. 

While the President’s proposal includes support for passage of the Retirement Security Advice Act as a means of expanding participant access to professional advice, the Cardin/Portman proposal actually offers an enhanced way for workers to pay for that advice. 

Specifically, the legislation would allow workers to be able to pay for retirement advice and counseling on a pre-tax basis through payroll deduction – a measure the bill’s sponsors believe will expand access to expert guidance in making investment decisions regarding their retirement planning.

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