Compliance January 2, 2015

New Advocate at PBGC Suggests Action on Pension De-Risking

The new PBGC Participant and Plan Sponsor Advocate has released her first annual report of issues.
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“[P]ension de-risking may be the greatest threat to PBGC’s single-employer program, as it has the potential to substantially reduce PBGC’s premium base,” says the Pension Benefit Guaranty Corporation’s (PBGC) Participant and Plan Sponsor Advocate, Constance Donovan.

In her first annual report in the new position, Donovan says plan sponsor trade groups tell her pension plan de-risking is the most important pension issue on the minds of business executives in some of the largest corporations, and rising PBGC premiums are contributing to employer decisions to de-risk and exit the defined benefit system. Participant advocacy groups have other concerns about de-risking and the role the PBGC can play in mitigating this trend. “PBGC needs to be a part of that conversation so the Corporation can consider what changes, if any, they may want to make,” she writes.

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She also states that several participant and retiree organizations have questions about the increasing offers of lump sums and annuities to retirees and terminated vested participants in defined benefit plans that will remain ongoing. Both participant groups and plan sponsor groups have offered a variety of policy recommendations and requests for guidance. Donovan wants to help raise the questions of participants to the level needed to get practical information out in a timely manner. She says she believes educational materials exist which could go a long way in assisting participants facing major changes in their retirement outlook.

According to Donovan, participants insist that while de-risking may reduce certain sponsor risks, it simultaneously raises and transfers risk to participants. Some groups have called for a moratorium on such transactions until regulatory guidance can be issued addressing risks they see to the participants leaving the plan, and perhaps participants in plans that continue normal operations. “I want to highlight the importance of these issues at the highest levels,” Donovan says.

Overall, Donovan conveys that communication is an issue between the PBGC and plan sponsors and participants. She calls for a less adversarial view between sponsors and participants and the agency. Other issues she recommends conversation about are plan sponsor views of the PBGC’s guidance on so-called “shutdown enforcement” and the handling of plans that are designated as “church plans” by the Internal Revenue Service. Specifically, Donovan notes that the Pension Rights Center feels strongly that PBGC should not return premiums paid by church plan sponsors when they seek to undo Employee Retirement Income Security Act (ERISA) coverage after many years of insurance protection from the PBGC by applying for church-plan status.

Donovan’s report is here.

Compliance January 2, 2015

myRA Program Not Subject to ERISA

The U.S. Department of Treasury maintains the view that its myRA program is not subject to the extensive reporting, disclosure, fiduciary duty or other requirements of ERISA.
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The Department of the Treasury is offering myRA in response to a presidential directive to the Secretary of the Treasury to develop a retirement savings security focused on new and small-dollar savers. The myRA, or “My Retirement Account,” program will be administered by the Treasury Department and its financial agents, and will be targeted at lower- and medium-income individuals who generally are not currently saving and are not eligible to participate in an employer-sponsored retirement plan.

Title I of the Employee Retirement Income Security Act (ERISA) applies to any employee benefit plan that is established or maintained by an employer engaged in commerce or in any industry or activity affecting commerce, with few exceptions. While the myRA program is designed to provide retirement income to individuals, including employees, John J. Canary, director of regulations and interpretations, U.S. Department of Labor (DOL), states, “we do not believe Congress intended in enacting ERISA that a federal government retirement savings program created and operated by the U.S. Department of the Treasury would be subject to the extensive reporting, disclosure, fiduciary duty or other requirements of ERISA, which were established to ensure against the possibility that employees’ expectation of a promised benefit would be defeated through poor management by the plan sponsor and other plan fiduciaries.”

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The department maintains that an employer would not be establishing or maintaining an “employee pension benefit plan” within the meaning of Section 3(2) of ERISA, given the program’s voluntary nature; its establishment, sponsorship and administration by the federal government; and the absence of any employer funding or role in its administration or design. This view is based on the facts that employees participate through payroll withholding contributions and that the employer distributes information, facilitates employee enrollment and otherwise encourages employees to make deposits to myRA accounts owned and controlled by employees. 

The myRA program is established with the following conditions:

  • A myRA account will invest only in a new Treasury retirement savings bond, which will be available only to myRAs;
  • The account will be a Roth individual retirement account (IRA) and is thus subject to the rules applying to Roth IRAs, including contribution limits, income limits and taxability rules. An employer making myRAs available by payroll deduction is not responsible for compliance with any of these rules or limits; and
  • There will be no fees to open and maintain a myRA; and, because the account can invest only in the myRA Treasury retirement savings bond, the account will never lose value, except as a result of withdrawals. Additionally, the assets can be rolled over at any time to a private-sector Roth IRA, and this will be done when the retirement savings bond matures after 30 years or once its total value reaches $15,000.

Employees may initially make contributions only via payroll deduction. The Treasury intends to expand the program to eventually allow individuals to make contributions by other means. At this time, the decision to open or close an account, how much to contribute, and whether or how to take a withdrawal would be made by employees by affirmative election, except for the rollover when the retirement savings bond matures after 30 years or once its total value reaches $15,000. The Treasury does not currently intend for employers to implement automatic contribution arrangements or automatic enrollment.

Through the myRA program, the Treasury Department or Treasury’s financial agent will make information and enrollment and election forms available for employers to then provide to their employees. Currently, in order for an employee to make contributions to a myRA, the employer must agree to forward the employee’s payroll deduction contributions. Employers would also be expected to cooperate in processes or procedures that the Treasury or its financial agent establishes to ensure that employee withholdings are being promptly and correctly remitted. Employers would not make employer contributions to myRAs and would have no investment or other funding obligations, or have any custody or control over account assets.

The complete information letter written from John J. Canary, director of regulations and interpretations, U.S. Department of Labor, in response to J. Mark Iwry, senior advisor to the secretary and deputy assistant secretary for retirement and health policy, U.S. Department of the Treasury, is available here.

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