Industry Update Blog

Late 2009 Retirement Plan Legislation and Industry Reactions

Burl Bachman - Monday, December 21, 2009

The retirement plan industry has a dogged and effective advocate: ASPPA, the American Society of Pension Professionals and Actuaries. Led by ASPPA, there has been extraordinary industry response to recent proposed legislation, in order to support the stability and effectiveness of our retirement plan system. This article highlights what has been going on behind the scenes in recent weeks.

Attack on Cross-Testing

Just before Thanksgiving, a new issue emerged which would endanger many small business retirement plans. This was a serious attack on cross-testing. On November 19, Rep. Lloyd Doggett (D-TX) introduced and pushed hard for action on H.R. 4126, a bill which would repeal cross-testing. It also provides that (1) only vested benefits would be considered for non-highly compensated employees in discrimination testing and (2) non-highly compensated employees who work less than 2,080 hours per year would be counted as fractional employees for coverage testing. The bill appears to be triggered by 2008 press reports about an old (1999) plan design that created a qualified supplemental executive retirement plan by grouping high-paid executives with low-paid casual employees. Rep. Doggett persuaded seven of his Democratic committee colleagues to cosponsor the measure, and has continually argued for its inclusion in year-end legislation in Democratic committee caucus meetings.

The Government Affairs Committee of ASPPA reacted immediately and intensely. Education of more than 25 key House Ways and Means Committee lawmakers and staffers in under a week occurred - they were made aware of the important role that cross-testing plays in delivering meaningful benefits to rank and file employees, and how devastating this bill’s effect would be to the private pension system, especially to employees of small businesses. This resulted in many Ways and Means offices agreeing that the bill needs to change. ASPPA has pledged and has begun to work with Rep. Doggett, and other concerned committee members, to find a way to address lawmakers’ concerns about “inappropriate use of qualified plans” to provide excessive tax-favored executive compensation. It now appears that this issue will wait until next year for resolution, and a broader grass roots effort will be launched if this proposal seems to be gaining traction.

Incidentally, an attack on cross-testing also occurred in the 1990s. Concerted efforts by ASPPA and other industry groups served to educate the involved parties and convey the understanding needed to weather that particular storm.

Funding Relief, Fee Disclosure and Roth Conversions for Qualified Plans

A year-end bill may include temporary defined benefit (DB) pension plan funding relief, 401(k) fee disclosure, and/or unifying the 2010 Roth conversion rules so that conversions can encompass Roth 401(k) accounts as well as Roth IRAs. All of these issues are in a state of flux, and time is running short due to procedural issues, since the Senate has been tied up with health reform measures.

ASPPA and other industry groups will continue our efforts to win inclusion of DB plan funding relief and the Roth conversion proposal in a year-end bill. However, due to the short time remaining, there is little hope that the Senate will take action on fee disclosure provisions this year.

RPAS has always been a strong and enthusiastic supporter of ASPPA and its government affairs efforts. We will continue to work in your interests to address these issues and we plan to keep you posted over the coming weeks.

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