Party Lines Drawn In Pension Proposals

March 22, 2002 ( - Congress took steps to insulate retirement programs from being 'Enron-ed' this week - but the competing bills are separated by both substance and party lines.

On Thursday, the Democrat-led Senate Education and Labor Committee voted 11-10 along party lines to pass the Protecting America’s Pensions Act of 2002, sponsored by its chairman, Senator Edward Kennedy (D- Massachusetts). Now-independent Senator Jim Jeffords of Vermont joined the Democrats.

That was despite the fact that an advice bill co-sponsored by Senators Susan Collins (R-Maine) and Jeff Bingaman (D-New Mexico) was essentially assimilated within the final proposal.
Stock Block

Senators opposed to the measure seemed most concerned about the limits the bill places on employer stock as an investment option. 

The bill basically forces employers to choose between offering stock as an employer match or as an employee option, but not both – unless the company also offers a traditional defined benefit pension plan. 

“A cap by any other name is a cap; this limits choice,” said Arkansas Republican Sen. Tim Hutchinson.  Opponents continued to protest that employers would pull back from sponsorship of these programs if these limits were imposed – ultimately restricting employee access to retirement savings programs. 

Ironically, Enron offered a defined benefit plan for its workers, a cash balance plan.

At the peak of its value, Enron employees held approximately 54% to 60% of their 401(k) plan assets in company stock, both in employee-directed accounts and from an employer match.

However, according to the Congressional Research Service, 89% of the Enron stock holding was purchased voluntarily by Enron employees, not through the company match.

Broader Impact

However, while the company stock restriction stands to impact only a modest number of plans, roughly 0.5% of the total, according to the Employee Benefits Research Institute (EBRI), the bill contains other provisions that could touch all 401(k) plans.

One of the more challenging to implement for plan sponsors could be the requirement that plan participants be represented on company boards that oversee retirement plans.

Other controversial provisions include requirements that:

  • company stock sales by executives be disclosed to workers
  • 401(k) plans maintain insurance to protect workers.

The Senate version also expands legal remedies for plan participants seeking to sue executives who misled them about their accounts, or “harm(ed) workers retirement security.”

However, the Senate bill lines up with existing Republican measures in several areas, including:

  • imposing a three-year holding period on company stock
  • requiring plans to offer education on benefits of diversification and risk of company stock
  • requiring quarterly benefit statements, including the percentage held in company stock
  • requiring companies to give workers 30-day notice before a blackout period.

The Senate bill will likely be reconciled with one reportedly underway in the Senate Finance Committee that is expected to be presented next month.

Recent Developments

Also competing for the hearts and minds of Congress are two bills passed in House Committees last week.

On the same day that Senator Kennedy’s bill was to be considered, the House Education and Workforce Committee passed its own pension legislation, the Pension Security Act (H.R. 3762) which is similar to, but not exactly like, a proposal put forth by the White House in February.

That bill passed by a vote of 28 to 19, as Democratic Representatives David Wu (D-Oregon) and Carolyn McCarthy (D-New York) joined 26 Republican congressmen in supporting the measure (see Senators Shut Down Enron Hearings, House Bill OK ). 

The Pension Security Act includes the Retirement Security Advice Act (H.R. 2269), authored by Representative John Boehner (R-Ohio), chairman of the House Education and Workforce Committee.

That bill would, among other things:

  • bar senior company insiders from selling their own stock during blackout periods
  • clarify that employers have a fiduciary responsibility for the security of workers’ investments during blackouts
  • offer a rolling three-year diversification requirement for employer stock
  • provide for a 30-day advance notice before blackout periods 
  • provide more information for participants on the importance of diversification.

The most controversial aspect of the House version is the advice component, which would allow money managers to offer investment advice to participants for a fee – a practice currently prohibited by ERISA.  Opponents say that would subject participants to advice biased by the interests of the fund manager.

Old Friends?

Another bill, passed by the House Ways and Means Committee last week (see Employee Benefits Bill Passed by House Committee ) also attempts to deal with Enron issues, as well as some unfinished pension reform business (see Chairman’s Mark Reflects Pension Compromise ).

That version, co-sponsored by pension and benefit activists Representatives Rob Portman (R-Ohio) and Benjamin Cardin (D-Maryland), allows workers to pay for investment advice with pretax dollars automatically deducted from their paychecks and provides a five-year schedule for selling matching company stock to avoid flooding financial markets.