NAGDCA Experts Say Pension Reform Prospects Still Good

September 10, 2002 ( - While time is running out for the 2002 legislative session in Congress, plan sponsors may yet get some new pension reform proposals.

That was the opinion of two industry experts speaking at the National Association of Government Defined Contribution Administrators (NAGDCA) in Scottsdale, Arizona. 

Susan White, president and founder of Washington-based Susan J. White & Associates, legislative counsel to NAGDCA, noted that “Enron-related” legislation is still likely before year end. 

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White acknowledged some elements of the pension proposals on the table might be problematic for government plan administrators, such as a requirement for quarterly benefit statements. 

 However, rather than oppose such provisions directly, she noted that NAGDCA had opted to work with legislators to make the final provisions as practical as possible.

Limited Life?
An ongoing concern for 457 plan sponsors is that the provisions in the Economic Growth Tax Relief and Recovery Act (EGTRRA) that did so much to resolve the historical barriers between 457 plans and other retirement programs are not permanent. 

White noted that the return of federal budget deficits introduced an element of uncertainty to the discussions that might require separating those provisions from the tax bill. 

At the same time, she cited a sentiment among some on the Hill that there was no reason to maintain separate sets of rules for programs such as 457 and 401(k) – particularly with EGTRRA’s progress in resolving many of the traditional disparities in benefits limits. 

However, the lack of a 10% excise tax imposition on 457 plan distributions, and the ability of beneficiaries to retire earlier under such programs seem likely to engender a desire to maintain a separation, both by government workers and plan sponsors alike. 

White noted one unexpected – and unpleasant – result of EGTRRA’s reconciliations – the imposition of 20% withholding on distributions from these programs.  401(k) plan sponsors, who have had a decade to acclimate participants to that impact, can surely sympathize.

Advice Price
Sharing White’s assessment for the prospects of pension reform was John Barry, an Assistant Attorney General for the State of Maryland, and NAGDCA vice president.  Barry noted that the key difference in the pension reform bills currently circulating on the Hill was the treatment of investment advice.

He noted that, as currently drafted, a requirement of a “statement of investment principles” contained in the bill passed by the House in April (HR 3672) and the Senate Finance Committee (S. 1971) would both apply to 457 plans.

However, Senator Kennedy’s version (S. 1992), as currently drafted, would not apply to those programs.

Barry noted that since state government plans operate under a different regulatory framework than federal programs, the current advice debate has an indirect application to government plans. 

He noted that in government plans trustees and administrators are allowed to give advice, and that private entities are required to comply with securities law with respect to advice – noting that giving advice may be a fiduciary act under state law.

However, 457 programs, which operate without the oversight of the Department of Labor on the advice issue, enjoy more latitude – and potentially more risk – for plan sponsors. 

Barry noted that state laws generally have no explicit restrictions on advice, nor will it typically have definitions of advice practices.  Still, state securities laws are likely to require that such advice and security recommendations be made only through licensed representatives.

But while 457plans have different issues, Barry noted that state plans do tend to follow the ERISA model, including participant education, adoption of independent computer advisory modules and a demand for independence of the advice provider.