July 26, 1991
TO: BOARD OF GOVERNORS NO. 54-91
PENSION COMMITTEE NO. 20-91
RE: INSTITUTE TESTIMONY ON PENSION SIMPLIFICATION LEGISLATION
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Attached is a copy of the Institute's testimony before a
House Ways and Means subcommittee on recent pension
simplification legislation. (See Institute Memoranda to Pension
Committee Nos. 15-91, 16-91, 17-91 and 19-91, dated June 24,
1991, June 25, 1991, June 26, 1991 and June 27, 1991,
respectively.) The Institute's testimony during hearings held on
July 25, 1991 focussed on supporting legislation which would (1)
expand retirement plan coverage to additional workers and (2)
preserve retirement plan assets for retirement.
With regard to expanding retirement plan coverage, the
Institute urged liberalizing the rules regarding salary reduction
arrangements in simplified employee pensions ("SEPs"). This type
of SEP is similar to a 401(k) plan, but the IRA is used as the
funding vehicle. Specifically, the Institute supported
legislation which would allow employers with 100 or fewer
employees to establish salary reduction SEP arrangements. Under
current law, these arrangements are limited employers with 25 or
fewer employees. The Institute explained that nondiscriminatory
participation in these programs by high and low paid workers
could be achieved if employers are required to make limited
matching contributions on behalf of those employees who
participate in the salary reduction SEP. The Institute supported
the use of this design-based nondiscrimination safe-harbor for
401(k) plans as well, in lieu of applying complex testing
formulae now required for salary reduction SEPs and 401(k) plans.
The Institute also supported legislation to encourage the
use of prototype retirement plans to help expand pension access.
However, the subcommittee was urged to be sensitive to the varied
distribution channels by which mutual funds market their
prototype plans.
With regard to the preservation of retirement plan assets,
the Institute supported legislation to encourage or require
workers to transfer their pre-retirement pension plan
distributions directly to an IRA. Finally, the Institute
supported legislation to relax restrictions on retirement plan
distributions which may be rolled over to an IRA, to the extent
these amounts were not automatically transferred.
We will keep you informed of further developments.
W. Richard Mason
Assistant Counsel - Pension
Attachment