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Guest Article (7/10/2002)

Pension Legislative Update

By Brian H. Graff, Esq.
Executive Director, American Society of Pension Actuaries

The recent media attention on accounting irregularities has not gone unnoticed by Congress. As you may know, before the July 4th recess, the Senate Banking Committee reached bipartisan agreement on legislation to reform the accounting industry. The Senate will be taking up this legislation this week. This is relevant for ASPA members because it is increasingly likely that the accounting reform bill could become a vehicle for pension legislation.

The Senate Finance Committee is scheduled to mark-up pension legislation this Thursday. ASPA's Government Affairs Committee was very involved in the development of this legislation, and we were able to obtain some positive changes and prevent some negative proposals. You can read a complete description of the proposed bill at

In summary, the proposed legislation includes:

  1. A requirement that employees be permitted to diversify employer stock contributed to their account after 3 years of service. In response to ASPA comments, the proposal does not apply to employer stock not publicly-traded.

  2. A proposal to clarify application of ERISA section 404(c) during a blackout period. This proposal has been substantially revised in response to ASPA comments. It includes a provision clarifying that 404(c) can continue to apply during a takeover of a plan involving changes in investment options, provided the participant is properly notified and the participant's election is respected.

  3. A minor change to ERISA section 409 clarifying that recoveries from a fiduciary as a result of a fiduciary breach can be apportioned to an individual participant's account. ASPA fought back much broader proposals from participant rights groups that would have exposed nonfiduciary service providers to monetary damages under ERISA.

  4. An increase in the ERISA bond cap to $1 million for plans that hold employer securities. This proposal replaces a proposal that would have mandated fiduciary insurance coverage at an unspecified level.

  5. A requirement for quarterly benefit statements, but only for participants with the right to direct investments. Also, if participants do not have the right to direct the investment of a portion of account assets, the most recent valuation could be used for such assets.

  6. Treasury would be directed to issue guidance on notices to be provided to DB plan participants explaining the relative value of different forms of benefit. Treasury is already working on this proposal, which is expected to be released this summer.

  7. Plans would have to distribute to plan participants with employer stock in their accounts the same disclosures required by the SEC to be given to outside shareholders.

  8. Disclosures required to be made to the SEC for trading by insiders would have to be also disclosed to employees electronically.

  9. Employers who hire independent investment advisors for participants would be exempt from any fiduciary or co-fiduciary liability associated with the provision of investment advice if they hire a qualified advisor (i.e. RIA) and satisfy a few other requirements.

At this point, it is still unclear whether the package will be added as part of the accounting reform bill, or perhaps as a separate measure either later this month or in September. If the pension bill is delayed until September, the differences between the Finance Committee bill and the HELP committee (Sen. Kennedy's committee) bill will once again have to be resolved. There are a number of procedural issues involved that could prevent current consideration of the pension legislation. Most significantly, the pension bill, since it includes tax changes, could open the accounting reform bill to other tax amendments such as the permanent repeal of the estate tax. Thus, the Democratic leadership might prefer to keep the pension bill separate. On the other hand, political pressure might force a limited deal to include the pension legislation now. Given the present dynamic political climate, the only thing certain is that it is uncertain. We will continue to keep you posted.

Brian H. Graff, Esq. is Executive Director of the American Society of Pension Actuaries. An attorney and certified public accountant, Mr. Graff was formerly legislative counsel to the U.S. Congress Joint Committee on Taxation, where he provided policy and technical analysis relating to pensions and employee benefits, health care, Social Security, and worker classification to members of Congress and their staffs. Prior to working on Capitol Hill, Mr. Graff was associated with the Washington, D.C. law firm of Groom and Nordberg, Chtd., which specializes in employee benefits. He can be reached at

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