June 14, 2011
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Jason Hammersla

Council testifies: Plan sponsors need predictability and clarity from agencies, support from Congress in the deficit debate

WASHINGTON, DC — "Employer plan sponsors and plan participants need predictable, clear and consistent guidance from our federal agencies and we urge you to help us address this situation," said American Benefits Council President James A. Klein today before the House of Representatives Committee on Education and the Workforce's Subcommittee on Health, Employment, Labor, and Pensions. Klein testified before the subcommittee during its hearing on Retirement Security: Challenges Confronting Pension Plan Sponsors, Workers, and Retirees.

Klein continued, "there are multiple agencies with regulatory authority over the retirement system — the Department of Labor (DOL), the Treasury Department and Internal Revenue Service (IRS), the Pension Benefit Guaranty Corporation (PBGC), the Securities and Exchange Commission (SEC), and even the Commodity Futures Trading Commission (CFTC). While this multi-agency system may be unavoidable, it does put significant responsibility on them to harmonize their initiatives, so that regulatory requirements are not duplicative, inconsistent or — even worse — contradictory."

Conflicting guidance already hamstrings plan sponsors as Klein illustrated, "the proposed CFTC 'business conduct' rules (issued pursuant to the Dodd-Frank financial reform law) will, if followed, force certain parties to violate the 'fiduciary' standards of ERISA that obviously fall within the jurisdiction of this committee. This must be avoided."

Klein then expounded on the many challenges faced by employers who must comply with regulatory requirements prescribed by an alphabet soup of federal agencies. Of particular note, he urged:

  • Congress needs to assert greater oversight on agencies that issue regulations clearly inconsistent with legislative intent. An example of this relates to hybrid plans. The statute requires interest crediting rates not to exceed a market rate of return. The proposed Treasury/IRS rules specify a certain interest rate and state that any other higher rate will violate the law. So even if the plan is able to get a higher rate in the market it cannot use it. This will force employers to reduce the rate at which it credits plan accounts, to the detriment of participants.

  • Agencies need to give adequate time for employer plan sponsors to comply with new rules. The DOL recently announced an applicable date extension new fee disclosure rules between service providers and employers and the corresponding transition period for employers to comply with new participant fee disclosure rules. While the extra time is much appreciated, a two-fold problem remains: The service provider to plan sponsor disclosure rules have not yet been sent to the Office of Management and Budget for final vetting, likely leaving little time at the end of the year for compliance. Moreover, ideally a separate set of rules relating to electronic disclosure should be effective prior to the new participant fee disclosure guidance. This seems very unlikely to happen.

  • Plan sponsors should be held to appropriate standards of care in their various government reporting functions. But when employers are penalized for what are obviously innocent mistakes, it undermines their willingness to continue to sponsor plans. An example of this is where the PBGC has sought significant additional premiums from companies that actually paid the correct amount of premium on time, but made simple clerical errors when submitting the premiums through the agency's new electronic submission system.

  • Sponsoring a pension plan is a costly endeavor, which many employers are willing to shoulder if they can plan accordingly. But pension funding rules — such as those prescribed under the Pension Protection Act — are highly sensitive to minor changes in interest rates or the stock market. This volatility erodes the ability of employers to continuing sponsoring plans — especially during tough economic times. Plan sponsors need predictability.

Turning to a related concern for the subcommittee, Klein concluded "in trying to reduce the federal deficit, employers worry that Congress may look to the tax expenditure for employer-provided retirement plans *— $112 billion in fiscal year 2011. Some in Congress may overlook how these plans provide retirement savings incentives to workers at a significantly lower cost than the additional dollars needed to expand corresponding public programs. Because members of the Education and Workforce Committee inherently understand the value of the employer-sponsored retirement system, you are especially well positioned to be a voice within the budget debate on the need for tax policy to support, not erode employer plans and retirement savings."

Klein's written testimony is available on the Council web site. To arrange an interview with Council staff on retirement policy issues, please contact Jason Hammersla, Council director, communications, at 202-289-6700.

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The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.