Rep. Rob Andrews, D-N.J., has introduced two bills that together would permit employers to offer a hybrid retirement plan that would combine features of traditional defined benefit pensions and 401(k) programs.
By removing some onerous red tape governing the administration of defined benefit plans, the proposed accounts would make it easier and more affordable for employers to offer a comprehensive retirement program to workers, advocates say.
Principal Financial Group, Des Moines, Iowa, is backing the bills, predicting their passage would increase retirement savings by Americans through their employers. Principal says it was involved in framing the proposed legislation, which would change tax law and ERISA requirements to permit employers to establish so-called DB(k) plans.
Andrews bills, known collectively as “The Retirement Enhancement Revenue Act of 2004,” would create the DB(k).
Like 401(k) plans, the proposed DB(k)s would allow employees to make pretax contributions to their account, could include employer matching funds and permit employees to invest the 401(k) portion in market instruments such as stock funds.
Employees also would be allowed to take their DB(k) with them when they switch employers, unlike traditional DB plans, which have vesting periods and stop accumulating value when the employee leaves. Portability would make the DB(k) attractive to many younger employees, who tend to change jobs often, notes Stuart Brahs, vice president of federal government relations for Principal.
For older workers, the big attraction would be the defined-benefit feature, which means at least part of their retirement account would be protected from the vicissitudes of the stock market.
“Congressman Andrews legislation will remove much of the red tape that has prevented employers, especially small- and medium-size organizations, from offering pension plans to their workers,” says Larry Zimpleman, president, retirement and investor services for the Principal.
For employers, the DB(k) would provide an important way to attract and retain valued employees, he adds.