American Benefits Council
Benefits Byte

2014-004

January 27, 2014

The Benefits Byte is the American Benefits Council’s regular e-mail and online newsletter for members only, providing timely reports on legislative, regulatory and judicial developments, along with updates on the Council’s activities in support of employer-sponsored benefit plans.

The Benefits Byte is published by the American Benefits Council, based on staff reports and edited by Jason Hammersla, Council director of communications. Contact information for Council staff related to specific topics can be found at the end of each story.

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Comprehensive Retirement Plan Reform Legislation to Be Introduced Soon: Bills from Harkin, Collins/Nelson

Two major pieces of retirement policy legislation are expected to be introduced in the U.S. Senate in the near future, each proposing significant changes to employer-sponsored defined benefit and defined contribution plans.

Senator Harkin’s Retirement USA Proposal

Senator Tom Harkin (D-IA), chairman of the Senate Health, Education, Labor and Pensions (HELP) Committee, will introduce the Universal, Secure, and Adaptable (USA) Retirement Funds Act on January 30. The centerpiece of this bill is the creation of a new privately-run retirement plan, similar to a multiple employer defined contribution plan with no lump sum payments, no participant direction of investments, and no pre-retirement distributions. According to a January 27 news release, the new kind of plan would “combine the advantages of traditional pensions — including lifetime income benefits and pooled, professional management — with the portability and ease for employers of a 401(k).”

The plans would be required vehicles for employers that do not offer retirement programs with automatic enrollment and a minimum level of employer contributions, but could also be offered in addition to existing plans. The concept was first raised in Harkin’s July 2012 report, The Retirement Crisis and a Plan to Solve It (see pages 6-7), which suggests the following additional details:

  • Participating employers would automatically withhold a portion of employee pay for investment in "privately run, licensed, and regulated retirement plans ... overseen by a board of trustees consisting of qualified employee, retiree, and employer representatives;"
  • The Retirement USA funds would have professional asset management and conservative investments;
  • Participating employers would not have fiduciary responsibility with respect to investment selection, program operations or payable benefits;
  • Money invested would be “portable,” from one fund to another; and
  • Employees could opt out of participating in the funds.

A summary of Harkin’s 2012 proposal, prepared by Kent Mason of Davis & Harman, LLP, is available on the Council website. (Please note that this summary was prepared in 2012 and is not likely to reflect all the details of the current version of the proposal, but the summary provides a general description of the issues and objectives underlying the proposal.)

The USA Retirement Funds Act is also expected to address other important retirement policy matters, including hybrid plans, issues related to ERISA Section 4062(e) (dealing with the sale or shutdown of business operations at a facility), and lifetime income options in conjunction with defined contribution plans.

While the Council has promoted certain elements of the Harkin proposal and worked extensively with the lawmaker’s staff on inclusion of these elements in the proposed legislation, the Council has not endorsed the bill as a whole based on outstanding questions about how certain aspects of the bill will be structured.  A key concern has been the inclusion of employer mandates in the legislation.

Collins-Nelson Retirement Bill

Senators Susan Collins (R-ME), ranking Republican member of the Senate Special Aging Committee, and Bill Nelson (D-FL), a member of the Senate Finance Committee, intend to introduce the Retirement Security Act of 2014 as early as this week. The measure will address a broad range of defined contribution plan matters. A detailed preliminary summary, prepared by Kent Mason of Davis & Harman, LLP, is available on the Council website.

Most significantly, the bill includes an alternative safe harbor for automatic enrollment and escalation contributions, effectively raising the level of automatic contributions to defined contribution plans. The Council has promoted this safe harbor for several years as a way to improve retirement savings adequacy in defined contribution plans.

The alternative safe harbor provides for minimum levels of default contributions, specified matching contributions for non-highly compensated employees, a special tax credit for small employers that adopt the safe harbor, exemption from top-heavy testing and nondiscrimination testing (with respect to pre-tax elective contributions, matching contributions, and after-tax employee contributions) and a simplified notice and disclosure regime.

The bill also eases certain restrictions on multiple employer plans (MEPs) and expands the availability of the Saver’s Credit. The Collins-Nelson bill contains a number of provisions that the Council has long been championing and we anticipate supporting this bill on introduction.  

The Council will continue to be in close contact with both bills’ sponsors as they progress through the Senate. For more information, contact Lynn Dudley, senior vice president, retirement and international benefits policy, Diann Howland, vice president, legislative affairs, or Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.



IRS Application Deadline Extended for Defined Benefit Plan Opinion, Advisory Letters

The Internal Revenue Service (IRS) issued Announcement 2014-04 on January 23, allowing defined benefit plan sponsors until February 2, 2015, to submit on-cycle applications for opinion and advisory letters for pre-approved defined benefit plans for the plans’ second six-year remedial amendment cycle. Under IRS Revenue Procedures 2007-44 and 2011-49, the submission period for these applications was to have expired on January 31, 2014.

This extension applies to defined benefit mass submitter lead and specimen plans, word-for-word identical plans, master and prototype minor modifier placeholder applications, and non-mass submitter defined benefit plans.

According to the announcement, the extension was granted in response to requests from the employee benefits community that the IRS “develop a pre-approved plan program for defined benefit plans with cash balance features … that would be available for the second six-year remedial amendment cycle.  The IRS intends to expand the pre-approved program to permit plans with certain cash balance features to be submitted by sponsors and practitioners as part of their pre-approved defined benefit submissions, and the submission deadline is extended to allow time for the IRS to develop the necessary language and tools to implement this expansion.  However, this extension applies to all on-cycle pre-approved defined benefit plan submissions, even those that will not be modified to contain cash balance features.”

This rationale suggests that the IRS is progressing with its regulatory projectaddressing hybrid retirement plans, particularly issues related to “market rate of return” and “whipsaw.” The Council filed a comment letter in January 2011 on the proposed regulations and in December 2012 provided additional comments as well as answers to specific questions posed by the Treasury Department.

For more information, contact Lynn Dudley, senior vice president, retirement and international benefits policy, or Jan Jacobson, senior counsel, 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.

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