Compliance November 29, 2004

Pension Reform Legislation Could Take Center Stage in the New Year

November 29, 2004 (PLANSPONSOR.com) - Pension reform may be on the legislative slate again, with US Representative Rob Andrews (D-New Jersey) expected to reintroduce a bill in January that would make possible the creation of a hybrid defined benefit (DB) and 401(k) retirement plan

Reported by

Kip McDaniel

>The Retirement Enhancement Revenue Act, which was introduced in the waning days of the 108 ^th Congress, is expected to be put up again in early 2005. Many pension service firms – including The Principal Financial Group and the American Society for Pension Actuaries – are hailing the move as a positive one, especially for smaller businesses.

>The combination of DB and 401(k) plans – the DB(k), as it is often called – would be allowed under a revised federal tax code and altered Employee Retirement Income Security Act (ERISA). The point of the new law, according to The Principal, would be to cut through some of the red tape that hampers business efforts to provide both a 401(k) and a more traditional plan.

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>The two bills – H.R. 5397 and 5398 – addressed pension reform by attempting to amend the laws that govern pension plans. The result of such changes would be the potential for a combined DB(k) pension plan, in which employee contributions would be tax-deferred and employer contributions would be tax-deductible. It would allow for one plan-document, according to Principal, as well as one IRS fee, one Form 5500, and one ERISA audit, if applicable.

According to The Principal, aides to Andrews, who is the ranking Democrat on the House Education and the Workforce’s Employer-Employee Relations Subcommittee, have been working closely with the company to develop such changes. The plans for a DB(k) style-plan have been in the works for seven years, according to the company.