September 27, 1993
TO: BOARD OF GOVERNORS NO. 84-93
PENSION MEMBERS NO. 34-93
RE: INSTITUTE TESTIFIES BEFORE ERISA ADVISORY COUNCIL
__________________________________________________________
On September 22 and 23, 1993, the Institute presented the
attached testimony before two work groups of the U.S. Department of Labor’s ERISA
Advisory Council.
The Prohibited Transactions Work Group asked the Institute to recommend
improvements to the Department of Labor’s procedures governing exemptions from
ERISA’s prohibited transaction provisions. In its testimony, the Institute
stated that the Department does not provide sufficient interpretive guidance
concerning the scope of ERISA’s prohibited transaction provisions and that the
exemption process may be clogged by unnecessary requests for exemptions. The
Institute recommended that the Department consider adopting a process similar to
the "no-action" process used by the Securities and Exchange Commission under the
Investment Company Act of 1940 in order to provide more guidance to plan sponsors
and financial institution service providers. In addition, the Institute
suggested that, in each exemption, the Department identify the prohibited
transaction and explain why the exemption was necessary.
James Gately of The Vanguard Group testified on behalf of the Institute
before a second work group of the ERISA Advisory Council, which is examining the
growth of defined contribution plans, especially 401(k) plans. Among other
things, this work group is exploring whether employees participate in 401(k) and
other defined contribution plans in sufficient numbers. For example, the work
group has cited 1987 statistics indicating that only 59 percent of those
employees eligible to participate in 401(k) plans actually contribute. Mr.
Gately testified that current participation rates are much higher, generally in
the 70 to 80 percent range, and described the plan features and communications
techniques that mutual funds and employers are
using to increase participation levels. The Institute also intends to testify
before this work group next year when it examines investment returns under
defined contribution plans.
We will keep you informed of developments.
Catherine L. Heron
Vice President - Tax and Pension
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