Pension Bill Nearing Senate Vote Contains DC, IRA-Related Provisions

It is anticipated that the Pension Security and Transparency Act (S. 1783), a compromise bill that emerged September 28, 2005, with combined provisions of two other Senate bills, could soon be voted on in the Senate. This proposed bill is a vehicle for changes addressing defined benefit (DB) pension plan funding formulas and adequacy, disclosures to participants, investment advice, etc., but also contains provisions that would affect defined contribution (DC) plans and IRAs. 

 

The House Committee on Education and the Workforce has approved H.R. 2830, the Pension Protection Act of 2005, which has some provisions similar to S. 1783.  Normal procedure is for H.R. 2830 to proceed to the House Ways and Means Committee. The two bills are not identical. If both Senate and House pass differing versions of pension reform legislation, the bills would have to go through a conferencing process to align the provisions and be voted on again by the full Senate and House. 

 

Among the provisions in S. 1783 are the following. 

  • S. 1783 defines a right to diversify participant investments out of employer securities; three years for employer contributions, immediate for employee contributions, with employer notification requirement.
  • Benefit statements would be given once per quarter for a participant-directed plan, once per year for other plans, and upon written request of other beneficiaries (does not apply to single-participant plans).
  • S. 1783 includes an option for 401(k) plan participants holding employer securities to contribute up to three times the 401(k) deferral catch-up amount to an IRA in cases where the 401(k) sponsor has filed for bankruptcy, and is subject to indictment for business transactions related to the bankruptcy.
  • S. 1783 adds investment education requirements.
  • It provides for an employer fiduciary liability safe harbor for investment advice provided to participant-directed individual account plan participants by a qualified investment advisor.
  • S. 1783 directs the Secretary of Labor to issue regulations providing that domestic relations orders otherwise qualifying as QDROs will not be considered invalid because of their timing of issuance, or because they are revisions of prior domestic relations orders.
  • It provides that participants in REA plans who waive a QJSA or QPSA could elect a qualified optional survivor annuity.
  • S. 1783 allows rollover of after-tax amounts to a 403(b) annuity contract.
  • It allows nonspouse beneficiaries to roll over eligible rollover distributions to beneficiary IRAs.
  • It accelerates vesting of nonelective contributions.
  • It allows direct rollover to Roth IRAs.
  • S. 1783 eliminates the 25 percent penalty for distribution of SIMPLE IRA amounts within the first two years, and allows rollovers of such amounts within that period.
  • It allows automatic rollover of certain cashout amounts to be made to the Pension Benefit Guaranty Corporation (PBGC), and allows unclaimed assets of missing participants in terminating plans to be transferred to PBGC.
  • S. 1783 would expand certain notice and consent periods from 90 days prior to distribution to 180 days.
  • S. 1783 would simplify plan annual return reporting requirements for plans with fewer than 25 participants, and eliminate it for plans with less than $250,000 in assets.
  • S. 1783 provides that rollovers that are not included in income shall not reduce eligibility for unemployment compensation.