Pension Reform Misses Opportunity: Pension Rights Center

Karen Ferguson, Director of the Pension Rights Center, a non-profit consumer organization, argued that the bill would undermine rather than enhance retirement security for a great may workers.

Increased limits

She argued that, increasing contribution limits for savings plans would not increase the retirement security of 95% of 401(k) participants who contribute less than the current $10,500 maximum. Half of all full time, year-round workers earn less than $32,000 per annum and cannot afford to contribute more, regardless of the ceiling.

In addition, increased limits may encourage employers to shelve their traditional pension plans in favor of less-expensive defined contribution plans.

Ferguson also pointed out that little of the increased contributions would be new savings, since the lion?s share would come from higher-earners shifting funds from taxable investments. At the same time, all taxpayers, including those not contributing to 401(k)s and IRAs would be financing these tax breaks.

She cited Section 101 of H.R. 5549 as a possible remedy to this issue, where plans would be required to include all employees in a single line of business who meet certain age and service requirements.

Also at issue

The bills’ assault on the top-heavy rules, which provide important protection for lower and moderate-income employees in small firms, was also criticized.

It was suggested that the requirement be added that plans that are amended to incorporate the increased compensation cap, not be allowed to reduce future accrual rates for five years.

Cash Balance Concerns

The bill’s treatment of the conversion of defined benefit plans to cash balance or other hybrid plans also came under fire and are viewed by Pension Rights Center as nothing more than a delaying tactic to defuse the outrage of many employee groups throughout the country.

Ferguson also noted that notice of imminent conversion would be of little value to most employees unless those concerned were also given the right to request individualized comparisons of their benefits under both plans.

Section 405

The Pension Rights Center also urged that a provision be added to Section 405 of H.R. 10, which would require employees to be notified of a proposed elimination of a benefit and be given a statement detailing the burdens and complexities created by the action, and the impacts on their benefits.

Ferguson also took issue with H.R. 10?s provision for the electronic dissemination of the Summary Annual Report (SAR), arguing that merely sending e-mails to employees, informing them that they can view the report at a Web site is not adequate dissemination.

Notices, Statements and Reports

Ferguson argued against:

• The elimination of certain benefit suspension notices, saying that however onerous these notices are to employers, the consequences of not sending them are more so;
• Simplified financial reporting for smaller plans, saying that this would be open to abuse and
• individual benefit statements, saying that the bill does not go far enough in requiring the language used in the statements be less technical.

Read the full testimony