May 12, 2010

House Bill Would Strengthen Pension Benefits for Part-Time Employees

Retirement Fairness Act of 2009 has pension experts and bloggers buzzing

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Pension planners, benefits coordinators and bloggers have started to talk about a little-known House bill that would require companies to cover part-time employees in corporate pension and 401(k) plans.

Introduced in November by Rep. Lloyd Doggett and co-sponsored by 19 Democrats, the Retirement Fairness Act would require plans to include some part-time employees who are not highly compensated in meeting minimum coverage requirements and determine non-discrimination compliance by considering only vested pension plan benefits and contributions.

Now in the first step of the legislative process, the bill is under consideration in the House Ways and Means Committee. Though in its early stages, H.R. 4126 has some saying that the proposal would help part-timers make ends meet while others worry that it could jeopardize the qualified status of many plans.

Human capital and risk management firm Towers Perrin notes that Doggett has taken some flak over the issue of "cross-testing," which involves testing contributions on the basis of equivalent benefits. "Responding to criticism over the breadth of the bill, Doggett's office has released a revised draft of the bill," Towers Perrin said in an online update.

In a lengthy review of the cross-testing issue, John Lowell, JPMorgan vice president of compensation and benefit strategies, asserts that the elimination of cross-testing is the most significant change proposed by the bill. Nevertheless, Lowell frets that the bill "would significantly strengthen the qualified plan nondiscrimination rules and potentially jeopardize the qualified status of many plans."

Adam C. Pozek, vice president of consulting services for Sentinel Benefits & Financial Group in Reading, Massachusetts, said on his blog, Pozek On Pension, the elimination of cross-testing would have negative effects.

"Amidst the well-publicized concern about the adequacy of defined contribution plans, it seems counter-productive to attack a law that allows small businesses to provide meaningful benefits to rank-and-file employees in a cost-effective manner," Pozek said. "[But] anecdotal evidence suggests the elimination of cross-testing would likely result in the discontinuance of employer contributions or the complete termination of many small-business retirement plans."

Brett Goldstein, a pension administrator and president of The Pension Department Inc., a Plainview, NY, consultancy, warns that Doggett's bill makes drastic changes to certain types of pension and 401(k) designs, which would not be good for small business owners.

"Even the American Society of Pension Professionals and Actuaries thinks that this proposal could result in the termination of many 401(k) plans, and they have written letters opposing this proposal," Goldstein said in a press release.

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