Pension Reform Legislation

When Congress returns in September after an August recess, both the House and Senate are expected to consider important pension reform legislation. Congressional staff are presently busy hammering out details of major pension reform to strengthen the funding of defined benefit and multiemployer plans, protect the Pension Benefit Guaranty Corporation (PBGC) insurance fund, and protect older workers' retirement in cash balance plans. Before any legislation becomes law, the House and Senate must reconcile differences in their bills and vote to approve final legislation and send the final bill to the President for approval. The Bush Administration has commented that ensuring workers’ pension safety is a top priority.

In the House, the Pension Protection Act of 2005 (H.R. 2830) was introduced on June 9 by House Education and the Workforce Committee Chairman Boehner (R-Ohio), and Ways and Means Committee Chairman Thomas (R-Calif.) as co-sponsors. H.R. 2830 would amend the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code of 1986 (IRC) to reform the pension funding rules and for other purposes. HR 2830 provisions include:

• New minimum funding standards for single-employer and multiemployer defined benefit pension plans.
• Prohibiting shutdown benefits and other unpredictable contingent event benefits under single employer plans. Limits benefits under underfunded plans.
• Establishing additional funding rules for multiemployer plans in endangered or critical status. Requires measures to forestall insolvency. Repeals certain limitations on withdrawal liability.
• Setting forth interest rate assumptions for determining lump sum distributions and for applying benefit limitations to such distributions.
• Increasing certain premiums to be paid to the Pension Benefit Guaranty Corporation. Provides for phasing-in increases of: (1) the annual flat-rate premium paid by all single-employer plans; and (2) the additional risk-based premium, which is to be paid by all underfunded plans.
• Revising requirements for defined benefit plan funding notices. Requires additional disclosures in annual reports and to plan participants and beneficiaries, including notice of bankruptcy filings.
• Allowing plan sponsors and certain fiduciaries, other than fiduciary advisors, to provide certain investment advice.
• Increasing deduction limits for single-employer and multiemployer plans, thus allowing plan sponsors to increase their contributions. Revises deduction rules for combinations of defined contribution plans and defined benefit plans.

In the Senate, the National Employee Savings and Trust Equity Guarantee (NESTEG) (S. 219) was introduced by Finance Committee Chairman Grassley (R-Iowa) with ranking member Baucus (D-Mont.) in January 2005. S. 219 would also amend ERISA and the IRC to require defined contribution plans to allow employees to divest employer stock and diversify their pension asset investments. The Senate is currently working on a revamped version of S. 219. S 219 provisions include revising requirements relating to the following:

• information to assist pension plan participants;
• protection of plan participants;
• pension plan funding and deductions;
• the PBGC;
• replacement of the interest rate of 30-year treasury securities for purposes of funding, PBGC premium rates, and calculating lump-sum distributions;
• portability and distribution rules;
• the Employee Plans Compliance Resolution System;
• spousal pension protection, including spousal consent for distributions from defined contribution plans and division of pension benefits upon divorce;
• railroad retirement;
• joint and survivor annuity benefits; and
• compensation and pensions of Tax Court judges.

Neither the current versions of the House nor Senate bills contain provisions impacting the audit requirements of employee benefit plans.

We will continue to keep you informed of major actions with pension reform legislation in Congress.

Back to Tax and Business Update Summaries

To contact Feeley & Driscoll, please click here or call us at 1 (800) 392-6192.