Retirement Legislation Update

Lynn Dudley

Last Updated: February 17, 2006

Retirement Policy Legislation

H.R. 2830, The Pension Protection Act of 2005 passed House on December 15, 2005

S. 1783, The Pension Security and Transparency Act of 2005 passed the Senate on November 16, 2005

Substantial differences in proposals

Retirement Policy Legislation Reconciliation of Bills

– Conferees not yet named• Possible Senate Conferees - Grassley, Hatch, Lott, Gregg, Enzi, DeWine,

(Kyl, Snowe, Frist)• Kennedy, Baucus, Rockefeller, Harkin, Dodd, Mikulski, Bingaman• Possible House Conferees - Thomas, Camp, Rangel, Boehner, Kline, Johnson,

McKeon, Miller• Less Clear in the House due to the fact that Rep. John Boehner has vacated

position as Chairman of the House Education and Workforce Committee for position as House Majority Leader – expected to be active in conference regardless

• McKeon will take the place of Rep. Boehner as Chairman of the Committee

– Timing of Conference Uncertain• Arguments for “sooner rather than later” less time later in the political calendar

and less time for guidance to be issued before effective date• Conferees likely to be named after the recess for Presidents’ Day

Retirement Policy Legislation Three major components of pending legislation

– Restructuring of the Funding Rules• Single and Multiemployer Plans

– Hybrid Plan Clarity• Currently prospective only in both bills

– House Committee Report Language provides the provision is intended as a clarification of the law

• Substantially different approaches in bills• Oral Arguments in Cooper appeal

– Defined Contribution Plan Reform• EGTRRA Permanence• Automatic Enrollment• Default Investments• Investment Advice• Diversification Requirements

Retirement Policy Legislation Administration Position

– Continues pressure to move legislation closer to original proposal – included in 2007 Fiscal Year Budget, discussed in February 13 economic report

• Use of Credit rating for at risk liability• No credit balances• Short transition• No averaging for liability and asset calculations

– Maintains 5-year “hold harmless” period for plan conversions included in 2007 Fiscal Year Budget

– Further increases in PBGC premiums – $16.7 billion included in 2007 Fiscal Year Budget – Flat rate premium of $30, indexed to wage inflation included in Deficit Reduction Act (H.R. 4241, S. 1932)

Retirement Policy Legislation Political Variables

– Democrats• Concerns about healthy company plan freezes• Opposition to House hybrid provisions• Opposition to House investment advice provision

– Airlines– Multiemployer Plans– Defined Contribution Provisions– Varying Hybrid Plan Positions

• Is it better to have no provision or a prospective only provision?

– Varying Funding Rule Priorities and Positions

Other Legislative Activity

Continued Interest in Phased Retirement – introduction of S, 1826, Older Worker Opportunity Act by Sen. Herb Kohl (D-WI)– Tax credit up to 40% of first $6000 in wages paid to

certain older workers

– Must meet significant conditions including extension of health care on same basis as full-time workers

Increased Interest in Financial Literacy – hearing expected to be held by Senate Special Committee on Aging in March

Regulatory Initiatives Current Regulatory Initiatives

– Financial Accounting Standards Board Project Applicable to Defined Benefit Pension Plans

– Finalization of Nonqualified Deferred Compensation Guidance and Implementation of the New Rules – Council filed comments and Carl Lerner, Chairman of the Council this past year, testified before IRS/Treasury hearing – January 25th

– SEC Compensation Disclosure Requirements– Roth 401(k)s – proposed rules generally effective

January 2007 – some recordkeeping requirements in 2006 – Will be scheduling a Benefits Briefing shortly