Fall 2008

By Susan J. White and Jonah Mainzer, Susan J. White and Associates, Inc.

Financial Crisis, Bailout and Economic Stimulus

After working with the White House to pass a $700 billion bailout package while the Nation and the world continue to face a financial crisis of unprecedented proportions, Congress has turned its attention toward passing economic stimulus legislation right after the elections. Members of Congress and key committees are also beginning to focus on defined contribution plans and whether they provide adequate retirement security, given the recent major drops in the stock market and the tremendous losses in Americans' savings and retirement holdings.

Before leaving for the fall elections, two important committees held hearings on issues related to defined contribution plans:

The Senate Health, Education, Labor and Pensions Committee-up until now-publicly silent on 401(k) fees-held hearings-an indication that they may be inclined to work with the House on legislation in the new Congress in 2009.

Following on the heals of the federal bailout effort, Representative George Miller (D-CA), the Chairman of the House Education and Labor Committee held hearings on the role of defined contribution plans and whether they offered a safe haven for Americans trying to save for retirement. Miller, an advocate and sponsor of fee disclosure legislation, promises to continue to pursue legislation.

Numerous national press stories have also focused on defined contribution plans-and most specifically-401(k) plans. Senator John McCain (R-AZ), the Republican candidate for President also waded into the debate with his own proposal aimed at protecting retirees affected by the downturn in the economy by allowing 401(k) participants an additional year before being required to take distributions.

All of this ensures that the 2012th Congress will pursue matters related to disclosure of fees and protection of retirement assets, questions of the roles of defined contribution plans and defined benefit plans and how investments and financial decisions are made across the board.

In line with these efforts, the House Ways and Means Committee held a roundtable to review IRS activities related to defined benefit plans, audits and regulations. NAGDCA attended the roundtable that included representation from the Committee's Chairman, Charles Rangel (D-NY, Representative Pomeroy (D-ND) who chaired the roundtable, majority and minority staff, the Department of the Treasury, the IRS and representatives of various state defined benefit plans.

They agreed to continue to discussions and to jointly monitor activities related to IRS stepped up audits and regulatory efforts.

November elections and Economic Stimulus Legislation

With the congressional elections looming, Congress has left town to campaign; however, House Speaker Pelosi and Senate Majority Leader Reid have announced that each chamber will reconvene in a Lame Duck session starting the week after the elections. Pelosi announced today that the House will hold hearings and begin work on economic stimulus legislation that will include infrastructure funding and aid to states and local governments and tax cuts or rebates to boost spending. Although the President has stated his opposition to such legislation, it is hoped by congressional leadership that an election favoring Democrats this year will add impetus to a compromise on such legislation.

This year's Congressional elections appear to be more predictable than the Presidential election. Democrats are expected to make gains in both chambers of Congress but with Congress's approval rating in the low teens these results are far from certain. In the Senate, the breakdown is currently 49-49 with two independents caucusing with the Democrats. Optimistic Democrats feel that they can pick up the nine seats necessary to reach the sixty seat threshold which would remove the threat of a filibuster but that is unlikely a gain of four or five seats is expected.

In the House of Representatives, Democrats currently hold a 235-199 advantage with one vacancy that is expected to remain Democratic. Current polling shows a gain of roughly ten seats for Democrats which would not be enough to override a Presidential veto in a McCain Administration.

Retirement Proposals

The sagging economy has been the main focus recently of both campaigns and as a result neither campaign has many retirement proposals currently on the table. The recent news showing that people's retirement accounts have been substantially reduced has begun to turn this around to a certain extent.

The McCain campaign, as mentioned earlier, proposed protections for 401(k) participants earlier this week. In an effort to stay close to Republican ideology, McCain would not raise taxes and would attempt to supplement Social Security with personal investment accounts-a proposal that appears less and less likely in light of the current economic crisis and Democrats, who have traditionally been opposed to such an effort, most likely gaining seats in Congress.

Senator Obama is opposed to the privatization of Social Security and would require full disclosure of company pension investments. He would also support automatic workplace pensions and expand incentives for retirement savings.

National Save for Retirement Week

This is the third year that NAGDCA has lobbied for a National Save for Retirement Week (NS4RW) Resolution. After quick passage of the Resolution in the House of Representatives, the NS4RW Resolution was held up in the Senate and then passed unanimously.

NAGDCA worked closely with the Senate Assistant Majority Leader's Office and with the sponsors of the Resolution to ensure final passage. The efforts of Senators Smith and Kent Conrad (D-ND) undoubtedly played a key role in the release of the resolution and its final passage. Senator Ben Cardin (D-MD)-a long time champion of state and local government defined contribution plans-also worked closely with us to win final passage of NS4RW in the Senate.

Administrative Fees

Although no legislation passed this year, both the House and the Senate held various hearings throughout the year and are planning on reintroducing legislation that was introduced this year. The House Committee on Education and Labor passed H.R. 3185, the 401(k) Fair Disclosure for Retirement Security Act of 2007, out of Committee but the full House never took up the measure and Chairman George Miller (D-CA), one of the bill's original sponsors, has promised to bring the bill back up again next year. Additionally, the Senate Committee on Health, Education, Labor and Pensions recently held a hearing titled "401(k) Fee Disclosure: Helping Workers Save for Retirement" and are looking at the issue.

One note on the Miller bill is that it amends the Employee Retirement Income Security Act of 1974 (ERISA) therefore it does not impact NAGDCA members at this time. In order to do so, it will need to be joined with another measure coming out of Ways and Means and, in that regard, can be used as a starting point for legislation that does include governmental defined contribution plans.

Roth 457

The Roth 457 provisions were not passed into law this year as the House Committee on Ways & Means was strongly opposed to them. However, the Senate added the provisions to various pieces of legislation throughout the year and it has always been thought that the measure may well appear next year as it is a revenue raiser. This may well change given the increased attention to defined contribution plans in the context of the ailing economy and the losses faced by Americans in their 401(k)s. Congress may be less likely to approve such efforts.

The House Committee on Oversight and Government Reform also recently passed legislation that would allow Roth provisions for federal employees. This legislation did not pass the entire House but is another strategy open to NAGDCA in the future. Ways & Means opposed this legislation as well and argued that as there were tax provisions the legislation should have come out of that committee.

NAGDCA Board Members Meet in Washington in July

During the second week of July, members of the NAGDCA board flew into Washington for a series of meetings with the Department of the Treasury, IRS, the Senate Committee on Finance, and the House Committee on Ways & Means. These meetings were in follow-up to the NAGDCA Industry Roundtable held in May and were focused on 403(b) plans. Additionally, a meeting was held with Senator Gordon Smith's (R-OR) staff to discuss National Save for Retirement Week issues.

Summary

NAGDCA will continue to weigh in with Congress and the new Administration regarding the role of state and local government defined contribution plans, the need for financial literacy during these difficult financial times as well as the need for transparency and prudent investment strategies.

We will monitor all efforts aimed at fee disclosure and protecting participants related to their retirement savings in the new Congress.