July 29, 2014
- Senate Strips Pension Funding Stabilization From Transportation Bill
- GAO Recommends Additional Disclosure, Guidance for Managed Accounts in 401(k) Plans
Senate Strips Pension Funding Stabilization From Transportation Bill
The U.S. Senate approved an amended version of the Highway and Transportation Funding Act (H.R. 5021) on July 29, effectively eliminating the U.S. House of Representatives-approved extension of the pension plan funding stabilization (or “smoothing”) measure originally passed as part of the previous transportation bill, the Moving Ahead for Progress in the 21st Century (MAP-21) Act of 2012.
The Senate measure funds highway projects through December, instead of May 2015 as established in the House-passed version of H.R. 5021, intended to force action on a long-term highway funding measure before the end of the year. Final, amended text of the Senate-passed version of H.R. 5021 was not available at press time.
The original MAP-21 provision stabilized interest rates for purposes of calculating defined benefit plan funding by constricting the segment rates used to determine funding status within 10 percent of a 25-year average of prior segment rates. The subsequent phase-out of the original MAP-21 stabilization provision – under which the 10 percent corridor is gradually increased to 30 percent – has reduced the effectiveness of the measure.
Procedurally, the Senate first approved an amendment offered by Senate Finance Committee Ron Wyden (D-OR) and the committee’s ranking Republican member Orrin Hatch (R-UT) that incorporated a three-year extension of the MAP-21 funding stabilization (as described in the July 10 Benefits Byte) rather than the five-year extension included in the House bill.
In a floor statement introducing his amendment, Wyden criticized the House’s version of the MAP-21 pension funding provisions. “The House overuses pension smoothing,” Wyden said, suggesting that the House-passed provisions would jeopardize the retirement security of defined benefit plan participants.
The Senate then approved a second-order amendment, sponsored by Senators Barbara Boxer (D-CA), Bob Corker (R-TN) and Tom Carper (D-DE), which stripped H.R. 5021 of pension funding stabilization entirely. Boxer also voiced criticism of pension funding stabilization, suggesting that the original MAP-21 law was “balanced” by Pension Benefit Guaranty Corporation (PBGC) premium increases.
The Senate measure will now be sent to the House, which must either approve the Senate bill or send new language back to the Senate. Speaker of the House John Boehner (R-OH) has voiced his commitment to the House-passed version of the measure and may simply send the House-passed bill back to the Senate once again shortly before adjourning for the summer. If Congress does not reach an agreement, funding for highway projects could dry up by mid-August.
The Council will be in close contact with lawmakers as they attempt to reach a compromise on the measures before the end of the week. For more information, contact Lynn Dudley, senior vice president, global retirement & compensation policy, or Diann Howland, vice president, legislative affairs, at (202) 289-6700.
GAO Recommends Additional Disclosure, Guidance for Managed Accounts in 401(k) Plans
In a report released on July 29, the Government Accountability Office (GAO) recommended that the U.S. Department of Labor (DOL) consider new fiduciary standards for firms that provide managed accounts in 401(k) plans.
Managed accounts are investment services under which providers make investment decisions for specific participants to allocate their retirement savings among a mix of assets they have determined to be appropriate for the participant based on their personal information. Because managed accounts have become increasingly common investment options in 401(k) plans, GAO was asked to explore the advantages and disadvantages of such accounts and how they are structured.
According to 401(K) PLANS: Improvements Can Be Made to Better Protect Participants in Managed Accounts, DOL should “consider provider fiduciary roles, require disclosure of performance and benchmarking information to plan sponsors and participants, and provide guidance to help sponsors better select and oversee managed account providers.”
The report, requested by Representative George Miller (D-CA) – the ranking Democrat on the House Education and the Workforce Committee – was based in part on a survey of plan sponsors and interviews with government officials, industry representatives, other service providers, and 12 plan sponsors of varying sizes and other characteristics.
GAO was asked to explore (1) how providers structure managed accounts, (2) their advantages and disadvantages for participants, and (3) challenges sponsors face in selecting and overseeing providers. The report ultimately found that “participants in managed accounts receive improved diversification and experience higher savings rates compared to those not enrolled in the service; however, these advantages can be offset by paying additional fees over time.” Plan sponsors, meanwhile, “are challenged by insufficient guidance and inconsistent performance information when selecting and overseeing managed account providers … [as] the absence of guidance for managed accounts has led to inconsistency in sponsors’ procedures for selecting and overseeing providers.”
The GAO will discuss this and other recent retirement reports in a public streaming video chat on August 4 at 2 p.m. Eastern Time (no registration necessary). Users may submit questions in advance by emailing them to AskGAOLive@gao.gov.
The Council will continue to monitor DOL activity in this area. For more information, contact Lynn Dudley, senior vice president, global retirement and compensation policy, at (202) 289-6700.