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By Susan J. White and Jonah Mainzer, Susan J. White and Associates, Inc. With the focus in Washington, first on the economy and the passage of economic stimulus legislation and, secondly, on health reform, retirement related issues have taken a back seat, but there are several developments underway with the Administration and in Congress that will ultimately impact retirement programs and defined contribution plans specifically. The Administration, which would like to move the conversation on the economy forward with discussions targeted on Americans’ need to save more, has proposed an Automatic IRA and an expanded Savers Credit, as part of its overall economic plan-- and Congress continues to discuss these issues and those related to disclosure and fees in defined contribution plans. For example earlier this year, Representative Earl Pomeroy (D-ND), a member of the House Committee on Ways and Means, introduced H.R. 1961 (The Savings for American Families’ Future Act of 2009) on this issue. Currently the bill has eight cosponsors including Representative McDermott (D-WA) Chairman, Subcommittee on Social Security and Representative Allyson Schwartz (D-PA) who is the lead Democratic sponsor for National Save for Retirement Week. There are no Republican cosponsors and there is no companion bill in the Senate. The Administration and Congress are also planning to move forward on tax reform legislation in the coming year and such legislation may prove a venue for the Administration’s proposals or a Roth 457 provision as discussed later in this article. National Save for Retirement Week H. Res. 662, calling for a National Save for Retirement Week during the week of October 18, was introduced on July 20 by Representatives Allyson Schwartz and Sam Johnson (R-TX). The Resolution was sent to the Committee on Ways and Means and the then to the full House where it passed without objection on July 31. In the Senate, Senators Kent Conrad, (D-ND), Chair of the Senate Committee on the Budget and a member of the Senate Committee on Finance and Mike Enzi, (R-WY), the ranking Republican on the Senate Committee on Health, Education, Labor and Pensions and a member of the Senate Committee on Finance, introduced a companion measure S. Res. 234 on August 3 which went directly to the floor and was passed by Unanimous Consent. Senator Ben Cardin (D-MD) signed on as a cosponsor as well. NAGDCA has pointed out, in its advocacy efforts on Capitol Hill, that the Resolution this year is more important than ever and, while the economy makes this more difficult, the need to save has not changed. Roth 457 On June 22, President Obama signed H.R. 1256 (Family Smoking Prevention and Tobacco Control Act of 2009) into law becoming Public Law 111-31. The majority of this bill dealt with smoking prevention and cessation, providing broader authority to the Food and Drug Administration (FDA) to regulate tobacco; however, the stepped up FDA activities are funded by allowing Roth plans for federal employees—deemed to be a revenue raiser for the federal government. A by-product of this bill is that key committees in Congress are reviewing their previous concerns with Roth-type plans for state and local employees’ 457 plans. This is due to the fact that now most other retirement plans can offer them and policymakers have indicated that it is not fair to state and local government employees not to have the option. The Senate Committee on Finance has long supported the provision, as it raises revenue, and has inserted it into various bills. These bills have either not been approved or the provision has been pulled out. NAGDCA continues to advocate for the Roth 457. Fee Disclosure/Investment Advice Hearings On October 1, the Committee on Ways & Means held a hearing and one of the panels was focused on investment advice. All of the witnesses agreed that more advice was better but there have been a number of questions raised regarding Chairman George Miller’s (D-CA) bill H.R. 2989 (401(k) Fair Disclosure for Retirement Act of 2009) and whether it is the best vehicle to mandate advice. A number of witnesses felt that the bill made the independence requirements for advisors too onerous and as a result many pension plans would stop offering advice rather than fulfilling the obligations. The private sector testified that passing the Miller bill could be disruptive, because so many participants are not trained in these financial issues and-- as a result defined contribution plans and their participants could be put financially at risk. If legislation moves forward in the House of Representatives this year, a final measure for floor debate will include, not only the Miller bill, but a bill to be produced by the House Committee on Ways and Means. It is this legislation that could address fees and disclosure for state and local government plans—as Miller’s bill address ERISA plans only. Additionally, on the heals of the Ways and Means hearing on investment advice, it is Ways and Means that may help in forging a compromise on these issues. Ways and Means Committee staff have indicated that there will be movement on this legislation prior to the end of this year. Saver’s Credit The recommendations, sent by NAGDCA to DOT and to Capitol Hill include 1) suggesting caution in directing these amounts into a new class of savings vehicles, and that a better approach directs the credit/match amount into the plan (or IRA) that received the contribution that generates the credit, 2) any system of federal plan contributions related to the credit should be as automated or automatic as possible, 3) statutes that establish such a system should exempt the credit amounts from state and federal offset/collection programs, in order to simplify administration and processing and 4) the program should have a clear and simple mechanism and rules for processing undeliverable funds. Financial Literacy Recently, several members of the NAGDCA board held a conference call with Congresswoman Schwartz to discuss financial literacy and the need to begin financial education earlier. NAGDCA agreed to work with the Congresswoman’s office on this critically important issue and will continue to do so in the future. The discussions focused on youth and financial literacy, specifically looking at high school students, with specific updates from members of the NAGDCA board on how some of these programs work locally. Other programs discussed included the need to educate teachers regarding financial literacy and ongoing financial literacy education for state and local government employees. Contribution Limits Recently there have been reports that individual retirement plan contribution limits could be lowered in the coming year, as these limits are tied to inflation and there has been negative inflation this year. NAGDCA has been in contact with DOT and with the House Committee on Ways and Means on these issues and decisions have not as yet been made. There are questions regarding the authority to decrease contributions, however, we have learned that the IRS believes they have the authority to do so. However, there are conflicting reports on whether there are plans to reduce the limits. NAGDCA will continue to monitor these developments. Securities and Exchange Commission Proposed Regulations The Securities and Exchange Commission (SEC) recently released draft regulations addressing pay to play arrangements. The proposed new Rule 206(4)-5 under the Investment Advisers Act of 1940 seeks to address political contributions by certain investment advisers. Although the proposed rule does not directly address conferences and meetings attended by advisors, it does raise the question of whether the definition of “contribution” should be broadened to include attendance by such advisors at meetings and conferences or-- whether the rule should attempt to define education/technical meetings and conferences, as opposed to “fundraisers”. NAGDCA continues to monitor this rulemaking process and its potential impact on state and local government defined contribution administrators. Government Accountability Office Report Last year the House Committee on Ways and Means formally requested that the Government Accountability Office (GAO) review and report to the Committee on the status of state and local government defined contribution plans and practices of such plans related to fees and disclosure. NAGDCA worked closely with the GAO, providing information, meeting and discussing at length the various governmental defined contribution plans and arrangements and how they are administered. The report, “Better Information and Sponsor Guidance Could Improve Oversight and Reduce Fees for Participants”, was released on October 5th and it can be viewed here. GAO makes a number of recommendations, including suggesting that Congress should consider amending ERISA to require sponsors to disclose fee information to facilitate comparisons, giving the Department of Labor’s specific authority over certain plans, and that the Internal Revenue Service (IRS) develop guidance on sponsor involvement, collect additional data on 457(b) plans, and share more information with financial regulators. |
