Thank you. Since ERIC focuses exclusively on advocating for the employee benefit and compensation interests of the country's largest companies, my top priority will be to make sure that policymakers appreciate the important role that these companies play in providing benefits to their employees and their families. We will advocate for protection of the voluntary nature of the private sector retirement system which is critical to its success, and oppose any one-size-fits-all approach to legislation and regulations which would stifle innovation and flexibility for employers that want to offer retirement benefits that meet the needs of their workers. 

2. What about President Obama's 2016 budget is causing you the most concern and why?

Two of the president's budget proposals in particular raise significant concerns from a retirement policy perspective. The first proposal would cap the amount of accrued benefits in tax-favored retirement plans and IRAs, and the second would provide the Pension Benefit Guaranty Corporation board with authority to set risk-based premiums based on its determination of the credit-worthiness of a plan sponsor. 

We believe the proposal to cap benefits would create a disincentive for retirement savings and be extremely difficult to administer for both plan sponsors and individuals who save for retirement through their employer's 401(k) plan or an IRA.  Tax-favored retirement savings accounts already have strict limits on the amount of annual benefits and contributions that can be made by employers and employees, as well as who is allowed to contribute to these accounts. 

… Imposing additional unnecessary and complicated administrative requirements on employer-sponsored retirement plans would have the opposite effect of encouraging retirement savings and would only create new compliance burdens for employers that offer retirement savings plans and cause unintended consequences for both employers and savers.

…  We believe that putting the PBGC board in charge of determining not only the amount of the premium that individual employers would pay to the agency, but also the standards by which the premiums are set – with no effective oversight from Congress or another neutral party – would create a direct conflict of interest.

The president's budget also includes proposals that seek to expand access to and the portability of retirement savings through state-sponsored programs.  Although we wholeheartedly support efforts to expand access to retirement savings plans, we are cautious of any efforts that would mandate retirement coverage or would infringe on ERISA preemption. 

3. What are you hoping the new Congress will tackle first, in terms of retirement policy?

… This new Congress provides an opportunity to modernize some of the rules applicable to retirement plans. For example, bipartisan legislation would modify the nondiscrimination provisions of the Internal Revenue Code applicable to frozen defined benefit plans in order to protect the benefits of older, longer-serving participants in the closed class. We are very supportive of this legislation.

As background, the issue stems from when a company transitions from a DB plan to a defined contribution plan, and in the context of such transition, the company grandfathers some or all of the existing employees under the benefit formula in effect.  The grandfathered participants continue to earn pension benefits in the plan, but these arrangements can cause nondiscrimination testing problems over time when the grandfathered workers remain in the plan and no new lower-paid workers are included in the plan for testing purposes. In many cases, the most workable solution is to completely freeze the plan. Employers do their best to avoid this result, which can result in participants losing significant pension plan benefits.

The Treasury Department previously issued temporary relief, but the relief applied only to a limited number of plans. Bipartisan  legislation introduced in the last Congress by Rep. Pat Tiberi, R-Ohio, and Sen. Rob Portman, R-Ohio, and Ben Cardin, D-Maryland, would protect older, longer-serving participants by providing an exception to nondiscrimination testing and allowing frozen defined benefit plans to apply the nondiscrimination rules to the closed class of participants as of the freeze date and beyond.

We also hope that Congress will take up legislation that allows retirement plans to leverage advances in technology as a means to comply with various disclosure requirements. Most workers middle-age and younger are very tech savvy and expect their companies and benefit communications to utilize technology as a method to provide information about their retirement plans.  We believe the time has come to allow plans to use electronic disclosure – with an opt-out provision for "paper communications" – to comply with the various retirement plan disclosure requirements.    

4. Should pension smoothing continue to be used by the government to fund such programs as the Highway and Transportation Funding Act of 2014? If so, why?

We regard pension smoothing as sound policy for determining required pension contributions.  Plan sponsors need stable and predictable funding measures that provide employers with certainty. The additional smoothing relief provided by Congress last year offers plan sponsors flexibility in funding their pension plans and a longer planning window for managing their plan contributions.   

Pensions are long-term obligations and should be funded using long-term external market conditions and assumptions. Pension smoothing allows companies to fund their pensions based on reasonable and long-term economic and financial assumptions, rather than short-term spot conditions. Without the continuation of appropriate smoothing, pension funding is subject to unnecessary and counter-productive volatility that over-burdens sponsors, discourages them from continuing plans, and often results in cash funding requirements that are counter-cyclical to business and economic conditions. The Federal Reserve has continued to maintain artificially low interest rates for a substantial period now, thus inflating pension liabilities. But companies should not be required to make cash contributions to their pension plans based on inflated and inaccurate pension liability numbers.  

5. Can you help explain why ERIC is opposed to the DOL's proposed 408(b)(2) disclosure guide?

As you know, the DOL in March 2014 released a proposed regulation that would amend the final fee disclosure regulations (issued February 2012) requiring service providers to provide a guide in certain circumstances to plan fiduciaries to assist them in reviewing the detailed fee disclosures. Covered service providers that made the disclosures in multiple or lengthy documents would need to provide plan fiduciaries with a guide that identified the document and/or the page on which each of the disclosures were made.  

We believe that a service provider guide requirement might be beneficial to fiduciaries of small and medium-sized plans, but not in the case of large company plans. 

Large employers have sophisticated professionals and advisors which enable them to obtain and analyze the relevant information to properly evaluate their service providers. In addition, fiduciaries for large plans typically have relationships with their service providers that enable them to get clarification and additional details as needed. Adding the service provider guide requirement would only add another layer of regulatory burden, and generate additional costs to plans, service providers and ultimately plan participants. 

We urged the DOL to treat large plans differently from small and medium-sized plans for purposes of any guide requirement, similar to how the agency has treated large plans differently from small plans in a variety of other contexts.  For example, DOL regulations provide that small pension plans have a safe harbor for when participant contributions are considered plan assets, have a lower maximum penalty under the Delinquent Filer Voluntary Compliance Program, have simplified annual reporting requirements, and are not required to obtain an examination and report of an independent qualified public accountant under certain circumstances.  We will continue to work with the DOL on rules that are appropriate for large company benefit plans.