Retirement Planning: Congress to Tackle Pension Funding, Investment Advice

The final guidance on DB funding released by the Treasury Department in early October “doesn’t remedy the problem,” Dudley says. Rather, it clarifies that for 2009 funding obligations, companies can use a “spike in the spot rate [the interest rate used in the fall of 2008] and then switch back to a smoothed rate for calculating liabilities,” she says. “We’ve solved the problem for 2009,” Dudley continues, but the funding problem for 2010 is right around the corner. “It’s already fourth quarter of 2009, and our obligations for 2010 are locked in on January 1, 2010.”

The Advice Issue

As for investment advice, industry officials argue that H.R. 2989, the 401(k) Fair Disclosure and Pension Security Act of 2009, passed by the House Committee on Education and Labor in June, will substantially reduce the number of participants who actually receive advice under the current rules. James McCarthy, managing director of retirement plan services at Morgan Stanley Smith Barney, testified before the Ways and Means Committee October 1 on behalf of the Securities Industry and Financial Markets Association (SIFMA), and said that because H.R. 2989 prohibits financial institutions from recommending an investment “if they or their affiliate serves as a custodian, broker, record keeper, or investment provider to a plan or IRA,…roughly 20 million fewer plan participants and IRA owners will no longer have access to existing advice programs, let alone the expanded offerings that PPA [Pension Protection Act of 2006] was to make available.” Travis Larson, a spokesperson for SIFMA, says that the organization expects the House Ways and Means Committee “to mark up legislation this fall,” and that he expects the bill will focus on DB funding and fees, and “possibly an advice piece.”