The Employee Pension Freedom Act, unveiled yesterday by Congressman George Miller (D-California), would prohibit employers from levying financial or other penalties against employees who sell any part of the company stock held in their 401 (k) plans.
The bill, introduced with over 50 co-sponsors from both parties, would also impose restrictions on blackout periods, accelerate vesting, expand participant disclosures – and call for a study on the feasibility of insuring defined contribution plans.
Miller, the senior Democrat on the House Education and the Workforce Committee chaired by Representative John Boehner (R-Ohio), has put forth a bill that would ban black-out periods for selling company stock – for any reason other than when administrative changes are made to the retirement plan. In those situations, a 30-day advance notice would be required – and those blackout periods would be limited to 10 business days.
Age-based trading limitations had been imposed on Enron participants in some parts of their employer stock account. However, several of the most visible participant lawsuits have challenged the blackout, or lockdown, period imposed during a change in recordkeepers.
The Employee Pension Freedom Act would require plan administrators to notify all participants upon vesting of the right to transfer employer stock matching contributions to other options in the plan – and would have to act on those requests within 30 days. Furthermore, the bill would require that covered employees be vested in their employer contributions after completing a single year of participation in the plan.
In an Employee Stock Ownership Plan (ESOP), employees would be allowed to diversify employer matching contributions after 10 years of service. Currently, ESOP participants may begin diversifying after attaining age 55 and 10 years of participation.
Pension plans that permit employees to direct control of their pension investments would be required to have an equal number of employer and employee trustees to oversee the plan.
Additionally, the bill would:
- require annual participant disclosures on the importance of diversification
- require detailed investment information, such as that currently required under federal securities law
- ban employers from requiring the waiver of statutory pension rights as part of a termination/severance agreement
- call for the establishment of an Office of the Participant Advocate by the Department of Labor
The Pension Benefit Guaranty Corporation (PBGC) would also be required to study and report to Congress no later than three years after passage of the bill on the feasibility of developing an insurance guarantee system for defined contribution plans.