The Senate voted 95-3 today to pass and send to President Bush H.R. 4, a bill that would change the rules governing defined benefit pension plans and includes many other provisions of interest to life insurers.
In addition to changing many aspects of pension plan administration, such as the interest rate assumptions used in plan calculations, H.R. 4 would:
- Impose new standards on sellers of corporate-owned life insurance.
- Encourage insurers to sell life insurance policies and annuity contracts with long term care riders starting in 2009.
- Let companies with excess pension assets to use the assets to pay for future retiree health benefits.
- Encourage employers to enroll workers in 401(k) plans automatically.
- Ease restrictions on programs that offer personalized investment advice to participants in defined contribution retirement plans.
- Allow employees age 62 and over to collect pension distributions while continuing to work for the same employer that sponsors the pension plan.
- Create new rules for donor-advised funds.
James Klein, president of the American Benefits Council, Washington, a group that represents large employers, expressed mixed feelings about the passage of H.R. 4, the Pension Protection Act of 2006.
“The pension bill passed by the Senate tonight is a very positive step for Americans participating in defined contribution retirement plans,” Klein says.
“However, as a result of the volatile pension funding rules enacted, I believe we will witness an unprecedented number of companies closing their well-funded defined benefit pension plans to new employees.”
Life insurance company executives interviewed are welcoming passage of H.R. 4.
“We thank Congress and the conferees on the pension reform bill for acknowledging the critical need for pension reform, and for their commitment to bipartisanship and cooperation,” says Kenneth Cohen, deputy general counsel at Massachusetts Mutual Life Insurance Company, Springfield, Mass.
“We expect that President Bush will join Congress in embracing the pension reform bill by signing it into law,” Cohen says.
H.R. 4 is “the most significant pension reform enacted by Congress in the last 30 years,” Cohen says.
MetLife Inc., New York, “applauds the House on passage of the pension reform bill,” the company says in a statement.
H.R. 4 is the “most comprehensive pension bill to be passed since the passage of” the Employee Retirement Income Security Act of 1974, the company says.
“We believe it strikes an appropriate balance between protecting participants’ interests, ensuring that defined benefit plans are adequately funded, and providing certainty in the rules for employers who wish to maintain retirement plans,” a spokesman says.
Herbert Allison, chairman of the Teachers Insurance and Annuity Association-College Retirement Equities Fund, New York, is calling passage of H.R. 4 “a major victory for the many Americans trying to meet long-term savings goals.”
The H.R. 4 provision allowing insurers to add LTC riders to life insurance and annuity contracts “is an extremely valuable tool for individual long-term security planning,” according to Michael Kerley, a senior vice president at the National Association of Insurance and Financial Advisors, Falls Church, Va.
The American Council of Life Insurers, Washington, has praised an H.R. 4 provision that would clarify an existing law that lets employers use the safest available annuity to distribute employees’ retirement plan benefits.
The provision would “encourage more employers to offer an annuity as a settlement option at retirement,” the ACLI says.
Congressional leaders based H.R. 4 and parts of a related bill, H.R. 5970, on the work of a House-Senate pension bill conference committee that never produced a conference report. Immediately before senators considered H.R. 4, they decided against letting H.R. 5970, which includes provisions that would cut estate taxes, raise the federal minimum wage for some workers and extend several popular tax breaks, go to the Senate floor.
Links to the text of H.R. 4 and other information about the bill are on the Web at Document Link: