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WASHINGTON-With the ink barely dry on comprehensive pension legislation passed by Congress last year, a group of Democratic senators is pushing for a new round of changes.
But unlike last year's measure, which included many provisions welcomed by employers, the new bill, The Retirement Security Act of 1997, is a decidedly mixed bill for business.
"Some provisions will be welcomed, but others are troubling," observed Frank McArdle, a consultant in the Washington office of Hewitt Associates L.L.C.
Perhaps the most troublesome provision in the measure, introduced by Senate Minority Leader Tom Daschle, D-S.D., and other Democratic senators, is one that would increase employers' 401(k) plan costs by requiring employers' matching contributions to be fully vested after three years.
Under common 401(k) plan design, employees have to work anywhere from five to seven years before employers' matching contributions to the 401(k) plan are fully vested.
Backers of the provision say faster vesting of 401(k) contributions is needed to assure that workers who move from job to job obtain benefits.
The cost of accelerating vesting of 401(k) contributions would vary considerably by employer with the highest costs incurred by employers in high-turnover industries, said Frank Roque, a Hewitt Associates consultant in Lincolnshire, Ill.
Other provisions, though, will be welcomed by employers. For example, one provision will eliminate the requirement that employers provide copies of summary plan descriptions, or SPDs, to the U.S. Department of Labor. However, copies of SPDs still would have to be given to employees.
Under current rules, SPDs have to be issued every 10 years, though the Labor Department and employees have to be given copies of material modifications to the plans no later than 210 days after the close of the plan year in which the changes are made.
Other provisions, while important for employees, would not have a direct effect on employers.
For example, the measure would define highly compensated employees-for non-discrimination testing purposes-as those earning more than $80,000 a year. Current law sets several definitions for highly compensated employees. Under the most widely used definition, highly compensated employees are defined as those earning more than $80,000 a year. Under an alternative definition, which the new measure would eliminate, highly compensated employees are those who earn more than $80,000 and rank in the top 20% of compensation in their companies.
In addition, the measure would double the amount of benefits guaranteed by the Pension Benefit Guaranty Corp. for participants in multiemployer pension plans.
Other provisions are aimed at potential future developments. For example, the proposal would bar 401(k) plans from allowing employees to use credit cards to take out loans from the plans. While financial institutions have discussed offering such a feature, none is currently marketing those kinds of cards.
Yet another provision involves a past practice-reversions from terminations of overfunded pension plans-that essentially has died out. The measure would require the Department of Labor to issue an annual report detailing pension reversions.
That practice, under which employers in the early and mid-1980s recovered more than $20 billion in surplus assets after terminating their overfunded pension plans, died out by the early 1990s in the wake of changes in federal law that imposed a big tax bite on reversions.
But the reversion issue has resurfaced from time to time. In 1995, Republicans proposed allowing employers once again to remove surplus assets from overfunded plans without any significant taxes. But Republicans later abandoned the idea after vehement opposition from President Clinton.