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Pension Group Warns Against Proposed Reforms

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NU Online News Service, Feb. 28, 11:18 p.m. – A lobbyist from the American Society of Pension Actuaries, Arlington, Va., told the Senate Finance Committee Wednesday that some pension reform proposals inspired by the crisis at Enron Corp. could do more harm than good.

Banning or limiting “lockdown periods” when employers change retirement savings plans might sound reasonable, but it could scare employers away from trying to improve plans, R. Bradford Huss, a lawyer who represents ASPA, testified at a committee hearing.

The hearing dealt with ideas for preventing the problems that destroyed the 401(k) plan at Enron Corp., Houston, from destroying other 401(k) plans.

Employers impose lockdowns, or freezes on employee changes in 401(k) plan investment allocations, when they are changing plan sponsors or making other major changes.

“Lockdowns are often instituted when an employer is improving plan services for employees,” Huss testified, according to a written version of his remarks distributed before the hearing. “Right now, because of the public controversy surrounding Enron, employers are reluctant to improve plan services for employees for fear of potential liability if they impose a lockdown.”

But, for many practical reasons, administrators need to impose lockdowns during major plan transformations to make all the necessary changes, Huss said.

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Instead of prohibiting lockdowns, or setting rigid length limits, Congress should require that sponsors give plan members adequate notice and full information about lockdowns, so that members can make appropriate changes to their accounts before the lockdowns start, Huss said.

Similarly, Huss said, Congress should avoid discouraging employees from sponsoring and improving 401(k) plans by imposing absolute liability for investment losses during lockdowns.

Instead, federal law should hold employers liable only when there is a breach of employers’ fiduciary duty to look out for the employees’ interests, Huss said.

Sen. Max Baucus, D-Mont., the committee chairman, also spoke of the need for caution.

“We need to strike a balance,” Baucus said. “We have to figure out how to protect worker’s investments in defined contribution plans without imposing so many rules and regulations that we regulate them right out of existence.”

The Finance Committee has posted the statements of the senators and witnesses who spoke at the hearing on its Web site, at http://www.senate.gov/~finance/sitepages/hearing022702.htm