September 23, 2014
- Council Releases A 2020 Vision: New Strategic Plan for Achieving Personal Health and Financial Well-Being
- Portman, Cardin Introduce Bill Addressing Frozen Defined Benefit Plan Nondiscrimination Issue
- IRS Issues Guide for Retirement Plan Reporting
Council Releases A 2020 Vision: New Strategic Plan for Achieving Personal Health and Financial Well-Being
On September 23, the Council formally released a new strategic plan: A 2020 Vision: Flexibility and the Future of Employee Benefits.
The Council’s strategic plan sets forth the conditions that should be in place by the year 2020 to enable Americans to achieve personal health and financial well-being. It also includes 46 specific legislative and regulatory policy recommendations for reaching the Council’s goals. The recommendations are designed to help ensure that employers can fulfill whatever role is most appropriate for each employer and their workforce – all along the spectrum from a traditional role as plan sponsor to facilitator, providing employees with the ability to take greater ownership of their benefits.
The strategic plan calls for several specific needed improvements to the Patient Protection and Affordable Care Act (PPACA) and legislative and regulatory changes to enhance retirement plans. It draws from many proposals developed in recent years and months by the Council’s policy committees and task forces and represents the culmination of more than a year of work by a task force of the Policy Board of Directors, and the full Policy Board, to evaluate and refine both broad goals as well as specific policy proposals to support those goals.
The strategic planprojects that the employee benefits environment in the year 2020 will be characterized by:
- Integration of personal health and financial well-being, rather than viewing all benefits in separate silos.
- Global competitiveness driving benefit plan design.
- An emphasis on simplicity and predictability in benefit plan administration.
- Maximum flexibility for employers and employees.
The Council unveiled the report at a National Press Club’s Newsmakers event on September 23. At this event, Policy Board of Directors Chair Janet Boyd, director of government relations, tax and benefits for The Dow Chemical Company, described the process through which the Board conceptualized and approved the plan. Board Member Michael Kiely, vice president of government affairs for the United Parcel Service, Inc., also spoke about the value of the strategic plan in relation to UPS’s own benefits programs.
The question-and-answer period focused on several of the specific recommendations within A 2020 Vision. The media was particularly interested in the recommendation to move toward an “exceptions-based” regulatory environment, to allow employers greater flexibility in meeting the overarching objectives of legislation and regulations, by targeting poor performers in the system, rather than imposing extraordinary costs and administrative burdens on all plan sponsors. Other questions from the media at the Newsmakers event delved into the proposals that would lower health costs and promote greater quality and price transparency in the health care system.
A 2020 Vision follows the Council’s previous strategic plan, Safe and Sound: A Ten-Year Plan for Promoting Personal Financial Security, issued in 2004. In light of the landmark health and retirement policy legislation enacted over the past decade, and the extraordinary changes in the way companies are now operating, the Council’s Policy Board of Directors in May 2013 approved the establishment of a task force to develop a new strategic plan. A 2020 Vision is the result of that effort.
Like Safe and Sound, A 2020 Vision recognizes that in the future, the three main stakeholders in the benefits system will continue to be individuals, employers and the government, although the roles of each one will evolve. The new plan not only sets forth the Council’s own policy advocacy agenda, but provides a benchmark against which to measure proposals from legislators, regulators and other organizations.
As stated by Council President James Klein in a news release announcing the plan, "This strategic plan is the result of — and a guide to — a collaborative effort to deliver on the promise of employer-sponsored plans."
The task force members devoted countless hours of time and effort, for which the Council is grateful to them and to the companies that made their participation possible. Wilma Schopp (Sigma Aldrich Corporation), who chaired the Council’s Policy Board of Directors from 2013 to early 2014, led the task force and helped solidify the vision for the strategic plan. Janet Boyd, who succeeded Wilma as Policy Board chair, shepherded the project to completion. Evidence of their leadership is the unanimous adoption of the new strategic plan by the Policy Board of Directors.
The task force members also included: Beth Ewing (FedEx Corporation), Tresia Franklin (Hallmark Cards, Inc.), Jim Gemus (Prudential Financial, Inc.), Alan Glickstein (Towers Watson), Lois Lourie (AbbVie Inc.), Randy Moon (Lowe’s Companies, Inc.), Bob Seng (Target Corporation), Belinda Sharp (Ruby Tuesday), Jesse Stephan (Phillips 66) and Julie Wirt (Intel Corporation). The task force was assisted greatly by an excellent team from Towers Watson that facilitated the process.
The Council will continue to provide additional updates and materials related to A 2020 Vision. All of these materials can be found on the Council’s special 2020 Page. For more information on the development or the content of the strategic plan, contact Council President James Klein at (202) 289-6700.
Portman, Cardin Introduce Bill Addressing Frozen Defined Benefit Plan Nondiscrimination Issue
Senators Benjamin Cardin (D-MD) and Rob Portman (R-OH), both members of the Senate Finance Committee, introduced legislation on September 22 to address the inadvertent harmful effects of ERISA’s nondiscrimination rules on plans that exempt some or all of a defined benefit plan’s existing participants from changes to the plan.
As we have previously reported, the increasingly necessary practice of defined benefit plan sponsors " soft freezing" their plans (closing them to new entrants) has created new challenges for employers. These plan sponsors have used various approaches to assist older employees with the transition to the new system. However, over time, some of these transition approaches can become technically inconsistent with current regulations prohibiting discrimination in favor of highly compensated employees. Generally, to avoid claims of nondiscrimination, both the old and new plans must pass one of three tests (requiring the plans to (1) be primarily defined benefit in character, (2) be broadly available, or (3) meet minimum benefit formula standards) before they can combine the plans for another round of nondiscrimination testing.
In meetings with several members of Congress and the U.S. Treasury Department, the Council has noted that many employers have already been compelled to completely freeze pension benefits on a prospective basis (i.e. a “hard freeze” in which participants receive no further benefit accruals) because of the difficulty in meeting those tests, and this could happen on a much broader scale in the coming years if the law is not changed to prevent the nondiscrimination rules from having this adverse unintended effect. After the Internal Revenue Service (IRS) issued temporary relief (for 2014 and 2015) earlier this year, the Council filed written comments with the IRS urging a permanent solution to the problem.
According to a joint Portman-Cardin press release announcing its introduction, the Retirement Security Preservation Act (S. 2855) states that a defined benefit plan does not fail the nondiscrimination rules, or the minimum participation requirement, provided the composition of the closed class of participants in the plan meets the following requirements:
- The closed class satisfied the rules as of the date the class was closed (including the nondiscrimination rules for benefits, rights and features offered to the closed class).
- After the closing date, any plan amendments that modify the closed class (or benefits, rights and features provided to the class) satisfy the nondiscrimination rules.
The bill also provides special rules in the case of an amendment that does not satisfy the second requirement and for defined contribution plans that are tested with the closed plan.
S. 2855 would prevent these closed plans from inadvertently violating the Treasury rules prohibiting discrimination in favor of highly compensated employees, and thus help mitigate the need for “hard freezes” that would otherwise be effectively compelled by the nondiscrimination rules.
S. 2855 is very similar to H.R. 5381, a measureintroduced in the U.S. House of Representatives by Pat Tiberi (R-OH) and Richard Neal (D-MA), the chair and ranking member, respectively, of the Ways and Means Subcommittee on Select Revenue Measures. Under H.R. 5381, if a grandfathered group of employees is a nondiscriminatory group when it is first formed, it would be treated as a nondiscriminatory group permanently unless the group is modified in discriminatory ways by plan amendment.
It is unclear whether S. 2855 and/or H.R. 5381will be considered by the full House and Senate prior to the end of the year since there are few legislative days left and the agenda for the “lame duck” session is uncertain. However, because the bills are so similar, it is possible these measures could be included in tax legislation considered prior to the end of the session, such as potential legislation that may extend expiring tax provisions. If it is not considered by the end of this year, it would need to be reintroduced in 2015. The Council will continue to work very closely with members of Congress such as Senators Portman and Cardin, and Representatives Tiberi and Neal to emphasize the urgent need for a comprehensive solution.
For more information, contact Diann Howland, vice president, legislative affairs, or Lynn Dudley, senior vice president, senior vice president,global retirement and compensation policy, at (202) 289-6700.
IRS Issues Guide for Retirement Plan Reporting
On September 18, the Internal Revenue Service (IRS) issued a new reporting guide, Retirement Plan Reporting and Disclosure Requirements, to be used as a reference tool for certain basic reporting and disclosure requirements for employer-sponsored retirement plans under ERISA.
Retirement plan sponsors are required to file certain forms and reports with the IRS and the U.S. Department of Labor (DOL) and send notices under various circumstances. Different reporting and disclosure requirements apply depending on the type of plan and the plan’s circumstances.
The new guide outlines the various requirements for certain forms (such as Form 5500, including Form 5500-EZ and -SF, and Form 5330 for returns of excise taxes on employee benefit plans) and notices (such as transfer of excess pension assets to retiree health benefit or life insurance accounts and intent to use 401(k) safe harbor).
The guide was prepared by the IRS and reviewed by the U.S. Department of Treasury (Treasury), the U.S. Department of Labor (DOL) and the Pension Benefit Guaranty Corporation (PBGC). It is intended to be used in conjunction with the DOL Reporting and Disclosure Guide for Employee Benefit Plans.
For more information, contact Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.