March 5, 2004
BB 04—26

Bush Administration Sends Letter to Pension Bill Conferees

In a March 4 letter, key members of the Bush Administration urged Pension Funding Equity Act (H.R. 3108) conferees to reject certain expanded relief provisions included in the Senate version of the bill. As the Council reported in the March 4 Benefits Byte, the House of Representatives and the Senate recently appointed conferees to resolve the differences between the House- and Senate-passed versions of the bill. The Senate bill includes a two-year waiver of the amoritization of losses for multiemployer plans, an automatic partial waiver of the deficit reduction contribution (DRC) for airline and steel companies and a DRC waiver application process for other companies.

While the letter reiterates the Administration's preference for a bill with interest rate replacement only, the letter specifically states its opposition to the addition of the application process for companies other than those in the airline and steel industries and to the multiemployer plan relief. Its letter asserts that the provisions would "weaken important worker protections by allowing significant systemic pension underfunding" and states that if the provisions are not stricken in conference, the President's senior advisers will recommend that the President veto the legislation.

The letter was signed by:

  • Elaine Chao, Secretary of Labor
  • John Snow, Secretary of Treasury
  • Donald Evans, Secretary of Commerce
  • Joshua Bolten, Director, Office of Management and Budget
  • Stephen Friedman, Assistant to the President for Economic Policy

The Council has made available a one-page chart, prepared by the Benefits Group of Davis and Harman, illustrating the differences between the two bills. For more information, contact Diann Howland, Council vice president, retirement policy, at (202) 289-6700.

SEC Proposes Mandatory 2% Redemption Fee

On March 5 the Securities and Exchange Commission (SEC) issued a proposed rule which would impose a two percent mandatory redemption fee when mutual funds are sold within five days of being purchased. The proposed rule was approved by the SEC on a 4-1 vote (see the February 25 Benefits Byte), despite the assertions of several commissioners who emphasized that fair value pricing might be a better method to combat market timing activity than the two percent mandatory redemption fee.

Under the proposed rule, funds would not be permitted to impose a higher or lower fee than two percent. In addition, each fund, unless excepted, would have to impose the fee. The proposed rule contains three provisions that would limit imposition of the fee. First, the fee would be calculated by treating the shares held the longest time as being redeemed first. This is often known as the first in, first out (FIFO) method and would likely limit fees on redemption of regular purchases such as employee deferrals. Second, the fund would not be required to impose the fee if the amount of shares redeemed is $2,500 or less (but note that this is optional with the funds). Third, the rule would provide for the waiver of redemption fees in the case of an "unanticipated financial emergency" upon written request of the shareholder. The fund would be required to waive the fee in these circumstances on redemptions of $10,000 or less and permitted to waive the fee on redemptions greater than $10,000.

The proposed rule does ask for comments on a number of issues, including fair value pricing's relationship to market timing, possible improvements to fair value pricing and additional tools that should be considered by the SEC. Comments on the proposed rule must be received by May 10. The Council is likely to submit comments, and will solicit feedback from membership soon. For more information, contact Jan Jacobson, Council director, retirement policy, at (202) 289-6700.


The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.