Pension Reform Bill Winding Its Way Through Congresss
Diversification requiremements, investment education notices are planks of new legislation.. Plan administrators accountable for educating participants.
HR 3669, the so-called Employee Retirement Savings Bill of Rights, was approved by the House Ways and Means Committee this week.
The bill, introduced in February, is intended, as its subtitle states:"To amend the Internal Revenue Code of 1986 to empower employees to control their retirement savings accounts through new diversification rights, new disclosure requirements, and new tax incentives for retirement education."
Specifically, the bill aims to amend the IRC to:
• impose an excise tax on a pension plan failing to provide notice of generally accepted investment principles, including principles of risk management and diversification;
• impose an excise tax on a pension plan failing to provide notice of any transaction restriction period to each applicable individual to whom the transaction restriction period applies (and to each employee organization representing such applicable individuals); and
• set forth diversification requirements for plans, including requiring the provision of at least three investment options, other than employer securities, in amounts equivalent to the amounts invested in employer securities.
Regarding the investment education component, the bill mandates that the plan administrator of an applicable pension plan shall provide notice of generally accepted investment principles, including principles of risk management and diversification. This is to be written in layman's language that is readily understood.
Also, plan administrators must provide notice of any transaction restriction period to each applicable individual to whom the transaction restriction period applies
The diversification requirement would amend IRC Sec. 401(a) to allow individuals in such plans to elect to direct the plan to divest up to the applicable percentage of such securities in the individual's account and to reinvest an equivalent amount in other investment options
