1 See Institute Memorandum to Pension Committee No. 14-99, dated March 16, 1999.
2 See Institute Memorandum to Pension Committee No. 19-99, dated March 22, 1999 and Institute Memorandum to
Pension Committee No. 23-99, dated April 5, 1999.
[11045]
June 8, 1999
TO: PENSION COMMITTEE No. 38-99
RE: REP. GEJDENSON INTRODUCES PENSION BILL
______________________________________________________________________________
Representative Gejdenson (D- X) has introduced H.R. 1590, the “Retirement Security Act of
1999,” the House Democrats bill that would implement the retirement policy proposals in the
Administration’s fiscal year 2000 budget. The bill includes the following provisions: portability, repeal of
the current liability funding limit for defined benefit plans, modified 401(k) safe harbors, payroll
deduction IRA accounts, tax credits for small employers that establish retirement plans, a simplified
defined benefit plan for small employers, the “SMART” plan and pension eligibility and vesting credits
for Family and Medical Leave Act (“FMLA”) leave time. The major pension reform bill introduced in
the House is H.R. 1102, the “Comprehensive Retirement Security and Pension Reform Act of 1999,”
introduced by Representatives Portman (R-OH) and Cardin (D-MD).1 In the Senate, the two major
pension reform bills include S. 646, the “Retirement Savings Opportunity Act of 1999,” introduced by
Senators Roth (R-DE) and Baucus (D-MT), and S. 741, the “Pension Coverage and Portability Act,”
introduced by Senators Graham (D-FL) and Grassley (R-IA).2
Specifically, the bill includes the following provisions:
I. Credit for Pension Plan Start-up Expenses for Small Employers: The bill would provide small
employers that establish pension plans with a credit of up to 50% of start-up costs up to $1,000
for the first year and $500 for the following two tax years.
II. Payroll Deduction IRAs: The bill would permit employers to establish payroll deduction IRAs
in which employees could invest up to $2,000 of pre-tax dollars in an IRA. The bill would also
provide tax credits for low-income workers who make contributions to IRAs of up to $450.
III. Penalty-Free Distributions from Qualified Plans and IRAs for Long-Term Unemployment: The
bill would amend section 72(t) to permit penalty-free distributions from qualified plans and IRAs
for individuals who have received qualified state or federal unemployment compensation for 12
consecutive weeks.
IV. Simplified Defined Benefit Plan – SMART: The bill would permit small employers to establish
simplified defined benefit plans, known as SMART plans. Under SMART plans, each
participant would have an individual account with a guaranteed minimum benefit upon
retirement. The participant could receive greater benefits if the investment exceeds the
presumed rate of return.
V. 1% Non-Elective Contributions to SIMPLE Plans: The bill would modify the matching
requirements under the SIMPLE plan rules to require employers to make 1% non-elective
contributions to employee accounts.
VI. 1% Non-Elective Contribution for the 401(k) Safe Harbor: The bill would modify the 401(k)
safe harbor to require employers to make 1% non-elective contributions to employee accounts.
VII. Periodic Benefit Statements: The bill would require employers to provide participant statements
annually to participants in defined contribution plans and every three years to those participants
aged 35 in defined benefit plans.
VIII. Small Employer Disclosure: The bill would require plans with less than 100 employees who
sponsor 401(k) plans to provide annual investment reports to participants and beneficiaries. The
bill would also require that the Department of Labor, in prescribing applicable regulations for
the investment reports, provide a means for the electronic transfer of the required annual report
to plan participants and beneficiaries.
IX. Prohibition of Plan Loans Using Credit Cards: The bill would prohibit the use of credit cards
for plan loans.
X. Reporting and Enforcement Requirements for Plans: The bill would require plan administrators
to report evidence of irregularities related to the plan to the Department of Labor within 5
business days of discovery. Plan auditors must report such irregularities to the plan
administrator with 5 business days of discovery, and if there is evidence of involvement of the
plan administrator in the irregularity, the plan auditor must report the irregularity to the
Department within 5 business days.
XI. Faster Vesting of Employer Matching Contributions: The bill would modify the vesting
schedule for employer matching contributions to three years for cliff vesting and six years for
graded vesting.
XII. Forms of Distribution Rule for Transfers Between Plans: The bill would permit defined
contribution plans (transferee plans) to receive transfers from other defined contribution plans
(transferor plans) in cases when the transferee plan does not offer all of the forms of
distributions under the transferor plan, assuming certain conditions are met.
XIII. Missing Participants Program: The bill would extend the PBGC’s missing participants program
to defined contribution plans.
XIV. Portability: The bill would permit rollovers between 403(b)s and 401(k)s. In addition, the bill
would permit rollovers of 457 plan assets to IRAs.
XV. 60-Day Rollover Relief: The bill would extend the 60-day rollover period in cases of
presidentially declared disasters and service in combat zones.
XVI. Spousal Right to Know Rules: The bill would require plan administrators to provide a
participant’s spouse with a copy of the explanation of survivor benefits and options under the
plan in the same manner as provided to the plan participant.
XVII. FMLA Leave Treated as Hours of Service for Vesting: The bill would require plans to treat
hours taken under the Family and Medical Leave Act as service hours for purposes of
participation in the plan and vesting.
XVIII. Plan Benefits in Divorce: The bill would deem certain domestic relations orders that do not
specifically consider pension benefits to be qualified domestic relations orders. The provision
would apply to marriages lasting 5 years or longer and in cases where the participant’s spouse
notifies the plan of the divorce proceedings.
XIX. Joint and Survivor Annuity Requirements: The bill would modify the current joint and survivor
annuity requirements to provide that the plan participant may elect to have the benefit paid in
the form of a qualified joint and two-thirds survivor annuity.
XX. Joint and Survivor Annuity Option for Defined Contribution Plans: The bill would require all
defined contribution plans to offer joint and survivor annuities. However, the provision would
not apply to hardship distributions. In addition, for defined contributions plans where the
current value of the joint and survivor annuity does not exceed $10,000, the plan may
immediately distribute 50% of the present value of the annuity to each spouse.
A copy of the bill is attached.
Kathryn A. Ricard
Assistant Counsel
Attachment