Congress Focuses on Retirement Plans 

• Melanie Waddell

For planners who provide advice to their business-owning clients on qualified and other retirement savings plans—everything from 401(k)s, SEPs, and Simples, to defined benefit plans—keeping abreast of regulatory and legislative changes is an important task.

Nowadays, there's plenty of retirement planning legislation wending its way through Congress to keep you busy. There's the issue of how the 401(k) advice component within H.R. 1000, the Pension Security Act, is going to shake out. There are proposed changes in defined benefit plan funding rules. Then there's the question of President Bush's proposed retirement savings plans—Lifetime Savings Accounts (LSAs), Retirement Savings Accounts (RSAs), and Employer Retirement Savings Accounts (ERSAs)—and how they might affect other retirement savings plans.

Let's start with an update on H.R. 1000, the Pension Security Act, which passed the House in May and is currently being debated in the Senate. H.R. 1000 would encourage 401(k) plan sponsors to hire investment advisors to provide investment advice to plan participants. Unlike the House bill, the Senate bill—reported out by the Senate Finance Committee in late September—says advisors who provide advice to plan participants should be independent of the plan sponsor. The House doesn't agree. "The bill in the Senate wouldn't allow anything other than independent advice," says Brian Graff, executive director of the American Society of Pension Actuaries (ASPA) in Arlington, Virginia. The Senate bill "does provide plan sponsors with a safe harbor that if the advice is independent, and provided that the advisor is qualified, i.e., a registered investment advisor, the plan sponsor will not be responsible for the selection and monitoring of the advisor," Graff says. "So the plan sponsor will be absolved of any fiduciary liability due to actions by the investment advisor, who by definition is also a fiduciary under the Employee Retirement Income Security Act (ERISA)."

Graff thinks it's unlikely the House and Senate will resolve their differing opinions this year, despite the fact that there are active discussions on the matter.

On October 8, the House unanimously passed the Pension Funding Equity Act, H.R. 3108, which would replace the 30-year Treasury bond interest rate as the benchmark to determine defined benefit pension plan funding with corporate bond index rates for two years through 2005. A similar Senate Finance Committee bill, on the other hand, "is a permanent fix," says Graff, offering "three years of corporate bonds and phasing in the yield curve that the Administration reports over five years." Graff says the Senate Committee on Health, Education, Labor, and Pensions is also working on "a short-term fix" of probably three years at a corporate bond rate. By the end of November, Graff predicts "some sort of short-term fix along the line of two or three years." The plan sponsor community, he says, "feels the corporate bond rate is the way to go; the longer the period of time the better."

There has been much debate over whether President Bush's proposed retirement savings plans will take business away from other types of retirement plans. The three savings proposals didn't get much attention from Congress last year, because lawmakers were tied up with dividend tax relief. But the proposals are included in Bush's 2004 budget, and Graff believes Congress will devote more time to them next year. The LSAs, RSAs, and ERSAs would have a "dramatic impact on the retirement plan system," Graff says. "We do think [the plans] will be detrimental to retirement plan coverage by shifting from workplace retirement plans to individual savings products that are less likely to be utilized by middle-income workers." That means people will shift from using 401(k)s and move to IRA products, he says, "and statistics have shown that middle-income tax payers are 11 times more likely to save in a 401(k) than an IRA—pretty staggering statistics."