Pension Reform May Stall
By: Source: AARP Bulletin Today Date Posted: 2002-05-01 10:31:00-04:00
Although the House last month passed a bill to overhaul pension laws, partisan rifts could stymie further congressional efforts to protect workers in 401(k) plans from the fate of Enron Corp. employees who lost their retirement savings in the company's collapse.
Sharp differences between the House bill and a Senate proposal have divided lawmakers along party lines, setting up a showdown that could delay final legislation until after the November elections.
The two approaches are "pretty far apart," says John C. Scott, director of retirement policy at the Washington-based American Benefits Council, an employers' advocate for benefits policy. "They don't allow a lot of room for compromise."
Major sticking points center on whether to restrict employers from overloading retirement plans with company stock and how to provide sound investment advice to workers.
A Senate bill (S. 1992) backed by Democrats gives employers a choice: They can either match 401(k) contributions with company stock or offer it to workers as an investment option, but not both. Employees could also sue company executives for wrongdoing related to 401(k) plans.
Bill sponsor Edward M. Kennedy, D-Mass., said that had the Senate bill been law when Enron collapsed, employees would not have lost their entire retirement savings.
But opponents say his bill would prompt companies to scale back retirement plans because of potential liability and the higher cost of making matching contributions to 401(k)s with money instead of stock.
The Republican-supported House bill puts more responsibility than the Senate bill on employees for protecting their retirement accounts. Companies would have to educate workers about diversifying investments but would not have to limit company stock in their pension plans.
The House approach would weaken worker protections, says David Certner, AARP acting director of federal affairs. It would allow firms that run 401(k) plans to give workers investment advice if they disclose any conflict of interest. The Senate bill would require independent advisers not linked to retirement plans.
"The Senate's bill," says Certner, "would beef up pension security by encouraging diversification and independent investment advice and improving remedies for pension fraud." Both proposals would permit workers to sell matching contributions of company stock three years after acquiring it. Enron employees weren't allowed to sell before age 50.
- • 5 Ways to Evaluate Your 401(k)
- • 13 Questions to Ask Your Employer About Its 401(k) Plan
- • Glossary: 401(k) Plans
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