With an amendment offered by Representative Bill Thomas (R-California), chairman of the Ways and Means Committee, the bill (HR 2830) helps facilitate auto K plan enrollment, tightens defined benefit plan funding requirements and steps up pension insurance payments to generate a cash infusion to the deficit-strapped Pension Benefit Guaranty Corporation (PBGC), according a Web announcement on the committee’s Web site. The House Education and the Workforce Committee approved the measure in June (See Boehner Pension Reform Bill Passes Committee on Party Line Vote ).
The Thomas amendment included:
- a year delay in the effective date for tougher DB minimum funding requirements from 2006 to 2007.
- a new provision that imposes a special fee of $1,250 per pension plan participant, per year for employers that terminate their pension plans in bankruptcy with the fee to apply for three consecutive years.
- removing a provision that he said would allow employers to cut vested pension benefits of union employees.
During the committee’s work on the bill, Democrats blasted some of the DB provisions as approved by House Education and the Workforce panel for being so onerous as to force some employers out of offering pension plans altogether, according to news reports.
“We could have had a better product if our committee had played an earlier and more aggressive role in the defined benefit area,” declared Representative Benjamin Cardin (D-Maryland), a long-time retirement plan reform proponent.
In addition to the Thomas amendment, lawmakers also approved by voice vote three minor Cardin amendments.
- The first would allow rollovers by nonspouse beneficiaries of certain retirement plan distributions.
- The second would address individual retirement account eligibility for the disabled.
- Finally, the panel altered the third amendment so that it enabled the saver’s tax credit to go directly into a savings account. ( As originally drafted, Cardin’s amendment would have made refundable the nonrefundable saver’s tax credit.) The pension bill, as approved by the Ways and Means panel, would make permanent the saver’s credit, which is scheduled to lapse after December 31, 2006.
Cardin and Representative Rahm Emanuel (D-Illinois) also put forward and then withdrew a fourth amendment that would have changed the Employee Retirement Income Security Act (ERISA) to ensure federal preemption of state and local statutes that conflict with automatic enrollment provisions in the federal law. However, Thomas ruled that the amendment fell outside of the Ways and Means panel’s jurisdiction, since the House Education and the Workforce Committee has jurisdiction over ERISA.
The panel rejected a Democratic substitute amendment, 16-24, that would have extended for two years the temporary corporate bond rate that pension plans use for valuing assets and liabilities. Their amendment also included provisions that would make the saver’s credit refundable, provisions affecting bankruptcy laws, and language taking back a portion recent tax cuts from joint filers who make $1 million or more annually or single filers who earn $500,000 or more annually.
In his committee remarks, Thomas attacked companies using the bankruptcy system "to dump massively underfunded pension plans" on the PBGC "as a business model. The PBGC insures private-sector pension programs.
"Frankly, the bankruptcy system needs to be changed - which is not in this committee's jurisdiction," Thomas said. "But by strengthening the pension funding rules in this bill before the committee, we are taking one of the first important steps to prevent companies from experiencing pension funding shortfalls and therefore the need to 'dump' their plans in the first place."
The committee-approved bill includes provisions that would, among other things:
- make permanent the increased annual contribution limits for individual retirement accounts and qualified pension plans enacted in the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001, which are scheduled to expire in 2010,
- create safe harbors aimed at encouraging employers to offer automatic enrollment defined contribution retirement plans, subject to certain conditions,
- direct the Internal Revenue Service to allow "split tax refunds," which would enable taxpayers to have the IRS deposit a portion of their tax refunds directly to their IRAs,
- modify the law to allow workers who participate in tax-preferred flexible spending accounts to carry over up to $500 annually in unused FSA balances, which could stay in the FSA or be transferred to a health savings account,
- allow annuities to offer riders for long-term care insurance coverage,
- revise the requirements governing combinations of life insurance and long-term care insurance products, and
- allow tax-free conversions of existing life, annuity, and long-term care products into annuities with long-term care riders.
A Ways and Means Committee summary of the bill is here .
The bill and the text of the Thomas amendment are here .
Information about the Bush Administration's pension reform proposal is here .