Plan sponsors will likely find the proposals less onerous in implementation than some already put forward in Congress, but there will be a greater emphasis on employee communications and choice with regard to their 401(k) investments, particularly company stock.
The President commissioned the White House study, conducted by Treasury Secretary Paul O’Neill, Labor Secretary Elaine Chao, and Commerce Secretary Donald Evans, on January 10 (see Bush Orders Pension Review ).
According to a senior White House official, the proposal would:
- Require a 30-day notice to workers of impending blackouts , those periods during a plan conversion when participants are unable to make investment changes. Currently there is no formal notice requirement.
- Require that workers be able to transfer contributions made in employer stock to other investments after three years of participation . Some plans impose age-based and/or timing restrictions on that ability. It is not clear what, if any, impact that proposal would have on Employee Stock Ownership (ESOP) plans, which currently provide for employee diversification only after 10 years of participation and attaining age 50.
- Hold employers liable for losses as a result of workers’ inability to trade during a blackout period – if the employer violated its duty to act in participant interests when it created the blackout period.
- Require employers to give workers quarterly benefit statements listing the value of their assets, their rights to diversify and the importance of having a diversified portfolio . Currently employers are only required to communicate those benefits annually – and a growing number have opted for electronic mediums, either telephone or Internet.
- Ban senior corporate executives from selling company stock during times when workers are unable to trade on their plans . It’s not immediately clear whether this ban would apply to all stock sales, or just those within retirement plans. Enron executives have been widely criticized for cashing in millions in stock while promoting the stock to workers. However, that stock was held outside the retirement plan – where Enron executives were ostensibly as blacked out as their workers.
This morning Secretary of Labor Elaine Chao described the President’s plan as a move to give participants choice, confidence and control. She further described the proposals as applying to workers ‘from the top floor to the shop floor’ on NBC’s the Early Show.
Bush is expected to announce those changes and others during an appearance before congressional Republicans at the Greenbrier resort in West Virginia.
Bush will also call on the Senate to pass the Retirement Security Advice Act, passed by the House of Representatives last November.
The bill, sponsored by Representative John Boehner (R-Ohio), would provide a limited exemption from ERISA’s prohibited transaction rules, permitting money managers to offer investment advice for a fee to participants. It has already received the endorsement of both Treasury and Commerce (see Advice Bill Gains Treasury, Commerce Support ).