June 25, 1991
TO: PENSION COMMITTEE NO. 16-91
RE: PRYOR RELEASES DRAFT PENSION SIMPLIFICATION BILL
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Senators Bentsen and Pryor recently released a draft
explanation of their forthcoming Employee Benefits Simplification
Act. A copy of the draft summary is attached.
According to the draft, the bill will contain many of the
same provisions which were introduced last year by Senator Pryor.
(See Institute Memorandum to Pension Committee No. 18-90, dated
July 31, 1990.) However, the new bill will incorporate the
Institute's suggestion to modify the discrimination rules
applicable to SARSEPs. (See Institute Memorandum to Pension
Committee No. 4-91, dated February 22, 1991.)
As recommended by the Institute, SARSEPs could be offered
by employers with 100 or fewer employees. No minimum participa-
tion rules would apply. Discrimination rules would be satisfied
if either (1) all participating non-highly compensated employees
receive at least a 100 percent match on elective deferrals up to
3 percent of compensation, and at least a 50 percent match on
elective deferrals of 3 to 5 percent of compensation or (2) all
eligible non-highly compensated employees receive 3 percent of
compensation. No matching contribution in excess of 6 percent of
compensation is permitted and discriminatory matching formulas
cannot be used.
The revised SARSEP discrimination rules would mirror the
proposed 401(k) discrimination rules under the bill.
The bill would eliminate 5-year forward averaging. It
would not repeal the special 10-year forward averaging grand-
father rules provided under the Tax Reform Act of 1986. The bill
would repeal all restrictions on rollovers from qualified plans
to IRAs, except for required minimum distributions and after-tax
contributions.
The bill would contain a pension portability provision
which requires amounts which would ordinarily be distributed to
an employee (cash-outs and other pre-retirement distributions) to
be transferred to an IRA or defined contribution plan selected by
the participant. If the participant does not select an IRA or
transferee defined contribution plan, or the selection is not
practical, the distributing plan must contain a default IRA
selection.
We will keep you informed of further developments.
W. Richard Mason
Assistant Counsel - Pension
Attachment