Lawmakers will start working this week to reconcile House and Senate versions of a bill that could shore up the U.S. defined benefit pension system and create new opportunities for firms to advise retirement plan members.
Other provisions now in one or both versions of the pension reform bill could give employers the right to enroll employees in 401(k) plans automatically, encourage employers to offer annuitization of defined contribution plan distributions, and offer favorable tax treatment for long term care riders sold with annuities.
Still another provision would extend the higher individual retirement account and defined contribution deduction limit increases included in the Economic Growth and Tax Relief Reconciliation Act of 2001. The deduction limits are set to return to pre-EGTRRA levels at the end of 2010.
Both the House and Senate approved pension reform bills weeks ago, but Democrats have pushed back the start of the conference committee by asking for one more conferee than the Republicans want to give them.
Defined benefit plan sponsors are hoping Congress will act quickly, because the sponsors face an important deadline in mid-April.
If President Bush signs a reform bill by mid-April, sponsors will be able to calculate pension benefit contributions using a relatively high benchmark interest rate based on corporate bond rates. In that case, contribution requirements will be modest.
If Congress fails to pass a permanent reform bill quickly, or to enact a temporary measure, sponsors may have to use the ultra-low 30-year Treasury bond interest rate, which would force sponsors to make much larger pension plan contributions, according to the American Benefits Council, Washington.
Worse, if Congress comes up with a final pension bill that makes the accounting rules too tough or the cost of Pension Benefit Guaranty Corp. backing too high, “this reform measure will accelerate the demise of traditional defined benefit pension plans,” warns Tim VandenBerg, a policy analyst at Washington Analysis, Washington, a firm that advises institutional investors.
Although life insurers have joined in the shift toward defined contribution retirement plans, they continue to have a big stake in the survival of the defined benefit pension system: Life insurers generated about $105 billion in group annuity sales in 2004, according to the American Council of Life Insurers.