Finance Committee Approves Pension Reform Legislation
Senate Finance Committee chair Charles Grassley (R-Iowa) and ranking member Max Baucus
(D-Montana) released a new version of their National Employee Savings and Trust Equity
Guarantee Act (NESTEG) on July 22, placing a stronger focus on defined benefit funding and
related pension reform issues. The Finance Committee approved NESTEG on July 26, thus
advancing the pension reform debate. Tales of the Dodo Bird and the Yellowstone Wolf: Lessons for DB Pensions and the Retirement Ecosystem
Changes in the underlying economics of defined benefit plans have made hybrid plans more
attractive to employers and to many employees as well. But it could be foolhardy to establish these
plans in today's unfriendly legal environment. Unless employers can safely go with the economic
and demographic flow to hybrid plans, defined benefit plans may be headed for extinction. Credit Balances in Funding Reform — Will They Be Real or Illusory?
Under pension funding law established over 30 years ago in ERISA, plan sponsors that contribute
more than the minimum funding requirement in any plan year accumulate the overpayments as
"credit balances" in their funding standard accounts. This encourages sponsors to prefund their
plans when they can afford to, generally during good economic times, so there is less need for
additional funding during poorer economic times. Pension Protection Act Would Establish New Rules for Multiemployer Pension Plans
The Pension Protection Act (PPA) approved by the House Education and the Workforce Committee
on June 30, 2005, would significantly reform the rules governing multiemployer pension plans.
The act would reduce the amortization period from 30 to 15 years, establish special funding rules
for "endangered" or "critical" multiemployer plans and impose new reporting requirements. Retirement Savings on Congress' Radar Screen
As defined benefit reform was debated on Capitol Hill in June and July, lawmakers also continued
to focus on retirement savings and other issues that affect defined contribution plans. Final pension
reform could include provisions to ease automatic 401(k) enrollment, encourage annuities, and
promote retirement education and investment advice.
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