Compliance March 9, 2006

Enzi Gets Nod as Chair of Congressional Pension Reform Conference Committee

March 9, 2006 (PLANSPONSOR.com) - One of the most closely watched US Senate/House Conference Committees in recent years got underway Wednesday as members tapped Senator Mike Enzi (R-Wyoming) to oversee development of a mutually agreeable pension reform measure.
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Enzi told the panel that he wanted to finish hashing out the differences between the Senate’s “Pension Security and Transparency Act” and the “Pension Protection Act of 2005” from the House by the end of the month and have a final bill ready for votes by April 7 – just before lawmakers leave Washington for a spring recess (See  House and Senate Must Now Reconcile Reform Bills ).   Both bills currently carry the HR 2830 bill number.   

One of the GOP representatives is House Majority Leader John Boehner who has played a privotal role in moving prior pension bills with a particular focus on how to give retirement plan participants appropriate investment education and advice.  “I look forward to working with my House and Senate colleagues and reaching agreement on a package of balanced reforms that will both improve the health of the defined benefit pension system and safeguard the retirement security of millions of Americans,” Boehner said Wednesday in his opening statement.

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While both measures bolster rules governing the funding of workplace pension programs and help strengthen the deficit-ridden balance sheet of the Pension   Benefit Guaranty Corp (PBGC) – the agency that insures private-sector defined benefit traditional pensions, there are key differences between the two.

According to a  134-page point-by-point comparison between the two measures as prepared by the Joint Committee on Taxation, the areas where differences between the two bills were more significant included:

Flat rate premiums for PBGC  – In the House bill, per-participant premiums for single-employer plans that are adequately funded would be $21.20 in 2006, $23.40 in 2007, $25.60 in 2008, $27.80 in 2009 and, in 2010 and thereafter, $30 as adjusted after 2006 for increases in average wages. Premiums for plans that were funded by less than 80% in the preceding year, would be $22.67 in 2006, $26.33 in 2007 and, in 2008 and thereafter, $30 as adjusted after 2006 for increases in average wages. In the Senate bill, the premiums would be $30 in 2006 “with indexing thereafter based on increases in average wages.

Automatic enrollment arrangements –  The House bill would require that automatic enrollment arrangements allow not more than 10% of compensation in automatic elective contributions and at least 3% in the first year of participation, 4% the second year, 5% the third year, and 6% each year thereafter. The Senate bill would require that automatic enrollment arrangements allow for elective contributions of at least 3% of compensation, which would increase by 1% or higher each year that an employee participates, up to 10%, or a higher uniform percentage rate under the plan.

Interest rates for lump-sum payments –  The House bill would change the interest rate used in determining minimum value to three segment rates based on the corresponding portion of a yield curve, which would generally be based on interest rates on investment-grade corporate bonds for the month before distribution. It would be phased in from 2007 to 2010 and also would change the mortality table used in determining minimum value to a mortality table based on RP-2000 Mortality Tables, projected to the year of distribution. The Senate bill would change the interest rate, to one “drawn from a yield curve (based on average interest rates on high-quality corporate bonds for business days during the preceding three months) that match the timing of the expected benefit payments under the plan.” It would be phased in from 2007 to 2009, but would not change the mortality table used in determining minimum value.

align=”left”>The Joint Tax Committee comparison also compares how the two bills would change:

  • the provision of investment advice – particularly in the area of fiduciary responsibilities and prohibited transactions, and
  • the rights of defined contibution participants to diversify their assets including selling company stock shares.

align=”left”>One Bush Administration official recently discussed in a Washington speech the range of concerns the Administration continues to have about the provisions of the pension bills (See Official: Administration has “Serious Concerns” about Pension Reform Bills ).

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Members of the House included in doing the work of developing a final version of the pension reform measures are:

Republican

Majority Leader John Boehner (Ohio), Howard "Buck" McKeon (California); Bill Thomas (California); Sam Johnson (Texas); John Kline (Minnesota.), Pat Tiberi (Ohio), and Dave Camp (Michigan.).

Democrat

George Miller (California); Charles Rangel (New York); Rob Andrews (New Jersey) and Donald Payne (New Jersey)

Members of the Senate contingent of the conference committee, in addition to Enzi, are:

Republican

Charles Grassley (Iowa), Orin Hatch (Utah), Trent Lott (Mississippi), Olympia Snowe (Maine), Rick Santorum (Pennsylvania), Judd Gregg (New Hampshire), Mike DeWine (Ohio), and Johnny Isakson (Georgia).

Democrat

Max Baucus (Montona), Edward Kennedy (Massachusetts) John Rockefeller (West.Virginia), Kent Conrad (North Dakota.), Jeff Bingaman (New Mexico), Tom Harkin (Iowa), and Barbara Mikulski (Maryland).

Administration March 8, 2006

"Secret" Settlement at IPERF Comes to Light

August 15, 2005 (PLANSPONSOR.com) - Indiana's Public Employees' Retirement Fund paid its former chief investment officer $212,000 to leave in a secret settlement brokered two years ago that has only just come to light.
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According to the online version of the Indianapolis Star, Patricia J. Gerrick, who was hired in 2001 and left in 2003, was in charge of investing the $10 billion IPERF.   The Star reports that Gerrick was fired in 2003 after a new executive director, Craig Hartzer, began bringing in his own team, but that she promptly filed a discrimination complaint with the federal Equal Employment Opportunity Commission.   The settlement allowed Gerrick to resign instead of being fired, handing her the severance package in question.   She eventually wound up in a similar position at North Carolina’s $60 billion fund (see  Tar Heel Fund Gets New CIO ).  

According to the Indy Star report, the Indiana settlement is becoming public now because the State Board of Accounts earlier this year took issue with the secrecy surrounding the payout in an audit of the pension fund.   The Indianapolis Star obtained a copy of the settlement after repeated requests under the state’s public records law.

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What’s at issue now is not the settlement itself, or the actions behind it, but the fact that auditors found that the fund violated state law by failing to ratify the settlement at a public meeting of the board of trustees.   When auditors noted the violation, the trustees at a February 2005 meeting, more than a year after the settlement was signed, approved a sweeping motion that ratified actions regarding “any and all litigation, proceedings, claims, and/or disputes.”

PERF Problems

The controversy is the latest in what has been a series of embarassments for IPERF, including the hiring of a chief benefits officer who was a convicted identity thief, temporary staff who stole money and Social Security numbers related to their employment at the fund (see  Audit Finds 23 ‘Significant’ Problems at PERF ), and a series of issues uncovered in the ensuing fund audits (see  Audit: Indiana Fund Still Beset With Problems ).  

Hartzer, whose actions triggered Gerrick’s departure, was brought on board by then-Governor Frank O’Bannon to address problems at the fund.   He resigned after the 2004 elections, and David Adams was appointed by now-Governor Mitch Daniels to replace Hartzer in March (see  Indiana Taps New Pension Fund Chief ).

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