Grassley Offers NESTEG Protections

Senator Chuck Grassley (R-Iowa) introduced the National Employee Savings and Trust Equity Guarantee Act (NESTEG) yesterday. 

‘Millions of Americans have hundreds of billions of dollars invested in employer-sponsored retirement plans,’ Grassley said. ‘My goal with this legislation is to make sure corporate missteps, including fiduciary mismanagement, aren’t allowed to fester, especially when it comes to protecting workers’ pensions.’

Grassley’s bill would impact: 

Company stock diversification .  The bill would prohibit restrictions on diversification of company stock where a worker has been with the company for three years.  However, the bill would not apply to closely-held companies – primarily because it is so difficult to value and too expensive for closely-held companies to redeem, according to Grassley.  The bill would also not apply to any Employee Stock Ownership Plan (ESOP) that consisted totally of non-elective contributions, where there are no matching contributions or employee money, or any ESOP that is a separate plan.

Blackout Notification .  The bill would require 30 days advance notice of blackouts on paper or transmitted electronically. Exceptions could be made in emergencies and other extenuating circumstances specified in securities law or by regulations published by the government.

Blackout Liability .  The bill would extend fiduciary liability over the assets of the plan during a blackout but would not hold fiduciaries liable for losses resulting from ordinary market fluctuations.  The DOL is asked to come up with safe-harbor guidelines for blackouts.

Executive stock trading .  The bill would extend the current golden parachute excise tax to certain sales of stock that occur during a blackout that prevented workers from selling or trading their own investments. However, it would apply only when the stock was acquired by the insider in connection with his or her employment.

Participant Statements .  Grassley’s legislation would require that defined-contribution plans that allow participant direction of investments to provide participants quarterly benefit statements. For all other defined contribution plans, an annual benefit statement requirement would apply.  Those statements would have to detail:

• how much money is in company stock
• restrictions on the disposition of stock
• information important to maintaining a well-balanced and diversified portfolio

Defined Benefit Statements .  The bill would require defined-benefit plans to provide an estimated benefit statement to each vested participant every three years. Participants could request annual statements.

The Grassley bill does not include provisions on investment advice – a topic described as ‘controversial’ by the Senator. 

In an opening statement at the Senate Finance Committee hearing on Enron yesterday, Senator Grassley noted, ‘There’s a lot of disagreement over how to get advice to the workers who need help. I hope my approach bridges the controversy and accomplishes the same goal of those who want an investment advice piece. That goal is giving workers the best possible tools to build a secure retirement plan.’