ERIC also offered the ongoing experience of ERIC members who sponsor cash balance and other hybrid pensions plans as an example of the adverse consequences that misguided regulations can have.
“The Pension Protection Act of 2006 reflected a clear policy in favor of establishing and maintaining hybrid plans that provide meaningful and secure retirement benefits. However, almost five years have passed, and Treasury and the IRS still have not issued definitive guidance on fundamental issues; and proposed regulations have introduced new stumbling blocks that are inconsistent with Congress’s intent,” said ERIC President Mark Ugoretz.
ERIC provided the suggestion as part of comments it submitted to the Department of Treasury in response to a Request for Information (RFI) as part of President Obama’s January 18 Executive Order on ways the Department could reduce the burden associated with its regulations.
ERIC’s letter adds that “[t]he current regulatory climate, particularly with regard to hybrid plans, offers very little incentive to maintain a defined benefit plan in any form, and actually imposes significant disincentives.”
In addition, ERIC said that overly burdensome regulations under the Patient Protection and Affordable Care Act (ACA) and other laws affecting employee benefit plans can have similar adverse consequences and that it is critical to “choose the least burdensome path,” as outlined in the Executive Order.
ERIC recommends creating one or more stakeholder advisory groups such as the Information Reporting Program Advisory Committee (IRPAC) to review regulations affecting employee benefit plans, and to discuss issues and proposed solutions with Treasury and IRS officials.
Specifically, in the areas of electronic disclosure, qualified plans, group health benefits, and executive compensation, ERIC offered the following recommendations:
- Permit electronic disclosure without affirmative consent since it is not practical for large employers to obtain, store, and administer electronic consents from tens of thousands of workers, retirees, alternate payees, and others. ERIC adds that Treasury should jointly work with the Department of Labor (DOL) to ensure that the requirements are no less burdensome that the updated requirements under DOL’s electronic disclosure initiative.
- Allow employers to provide the required notice of benefit restrictions under Internal Revenue Code section 436 a reasonable time before the restrictions become applicable. ERIC argues that many employers know in advance that the restrictions will apply, and wish to provide notice in advance when the information is most useful to affected participants, such as at any time during a window that opens a reasonable time (e.g., 90 days) before the restrictions become applicable and closes 30 days after the restrictions become applicable.
- Revise the regulations under Internal Revenue Code section 401(a)(9) to allow acceleration of payment after the payment start date. ERIC understands that certain restrictions might be necessary to prevent the use of increasing payments to circumvent the minimum distribution requirements, but argues that circumvention is not a concern when the initial form of payment complies with the requirements of the Code section.
- Reduce the burden required to comply with the “relative value” regulations under Internal Revenue Code section 417(a)(3). ERIC argues that the level of detail required under the regulation is a trap for the unwary and is of limited utility to participants, particularly where the plan offers a large number of option forms of payment.
- Reduce the level of detail required for notices under Internal Revenue Code section 4980F and ERISA section 204(h), and allow use of interactive modeling tools. ERIC argues that the regulations should be revisited to allow more simple disclosure, with a simplified form for amendments that allow participants to choose between the old benefit formula and the new formula, and allow shorter notices that describe in simple terms the provisions that are changing.
- Coordinate regulations affecting workplace wellness programs under Title I and II of the Genetic Information Nondiscrimination Act (GINA), noting that employers are reluctant to invest additional time and money in developing wellness programs until the applicable law is clarified, and gives effect to the intent of Congress and the Administration to support workplace wellness programs.
- Coordinate the ACA preventive services regulation with the Mental Health Parity and Addiction Equity Act regulations, so that a plan does not become subject to the MHPAEA merely because it provides benefits required by the preventive service regulation.
- Revise the regulations under Internal Revenue Code section 409A to address practical concerns, particularly with respect to benefits payable upon death, disability, or an involuntary separation from service.
ERIC’s comment letter can be accessed at http://www.eric.org/forms/uploadFiles/28B7C00000005.filename.ERIC_Response_to_Treasury_Regulatory_Burden_RFI_042911.pdf.