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Archived News Release--Caution:
information may be out of date.
For more information call: (202) 219-8921
Secretary of Labor Alexis M. Herman today announced
transmittal to Congress of a proposal to enhance pension security that
reaffirms the Administration's commitment to safeguard the retirement savings
of American workers. The "Pension Security Act of 1997" would protect nearly 23
million employee benefit plan participants by making financial audits more
comprehensive and accurate. The Act would also protect participants by
requiring plan administrators to promptly report to the Department of Labor
egregious violations of law affecting the integrity of the benefit plans. The
proposal would also save plans nationwide an estimated $2.5 million through
elimination of an unnecessary filing requirement.
Federal pension law currently requires that pension plans
with 100 or more participants receive an annual financial audit. Plan assets
held by financial institutions (such as banks and insurance companies) may be
excluded from the scope of the audit when a plan sponsor elects a so-called
"limited scope audit." Consequently, the auditor does not express an opinion on
the overall accuracy of the financial statements. Currently, approximately half
of the 65,000 larger plans are not receiving a meaningful audit. These plans
have assets totaling $950 billion.
"In these instances, the department, plan sponsors and
participants cannot tell whether plan assets are secure," Herman said. "The
department has proposed to repeal the limited scope audit to give plan
participants and beneficiaries and federal law enforcement officials more
assurance that the financial operation of larger plans are more fully exposed
to the sunlight of an audit."
Other protections include: expansion of the Pension
Benefit Guaranty Corporation's (PBGC) successful program to locate missing
pension beneficiaries; increase in the amount of benefits guaranteed by the
PBGC for multiemployer pension plans; increase of funding limits for
contributions to multiemployer pension plans; and provision of additional
retirement income protections for surviving spouses of federal workers under
the Civil Service Retirement System.
"Our audit reform proposal is intended to build on our
existing enforcement program by assuring that serious abuses are promptly
reported," Herman said. "At the same time, we are reducing reporting burdens
and associated costs to plans and improving the federal pension guarantee
program."
This draft bill is the latest in a number of actions
undertaken by the Labor Department to protect pensions of millions of
Americans. Just last month, Herman and Attorney General Janet Reno jointly
announced a multi-agency enforcement initiative to crack down on pension fraud
and abuse. As part of its broader pension enforcement program, the Department
of Labor has been targeting investigations into misuse of employee
contributions to 401(k) plans. To date, more than $24 million has been
recovered for more than 40,000 workers nationwide through this effort. Earlier,
the department modified the regulations to ensure employee contributions to
their 401(k) plans were deposited as quickly as possible.
U.S. Department of Labor
June 10, 1997
Pension Security Act of 1997
This proposal amends the Employee Retirement Income
Security Act of 1974 (ERISA) and would:
- REPEAL LIMITED SCOPE AUDITS: ERISA currently permits plan
assets held in certain regulated financial institutions to be excluded from the
annual financial audit requirements for plans with 100 or more participants.
Auditors, however, may disclaim any opinion as to whether the financial
statements are fairly presented, even for assets not held by financial
institutions. Under the proposal, accountants would no longer be able to issue
audit reports that provide no assurance that plan assets are secure.
- PROVIDE QUALITY CONTROL REVIEWS FOR AUDITORS: This proposal
would require ERISA auditors to have an external quality control review and
satisfy continuing education requirements relating to ERISA plan audits.
Substandard auditors' reports were the basis for rejecting more than 1,800
annual reports over the past 2-1/2 years.
- REQUIRE DIRECT REPORTING OF EGREGIOUS VIOLATIONS: The audit
proposal would place new, faster reporting duties on auditors who are
terminated by an ERISA plan or who discover evidence of serious violations of
law or other irregularities. Auditors would provide notice directly to the
Pension and Welfare Benefits Administration only if they first notified the
plan administrator and the administrator failed to notify PWBA within a certain
time, unless the administrator is implicated. Under the bill, auditors would
have mainly "backup" reporting responsibilities: the primary reporting
obligation would remain with the plan administrator.
- CLARIFY THE ASSESSMENT OF CERTAIN FIDUCIARY PENALTIES: The
draft bill clarifies that section 206(d)(1) of ERISA does not preclude an
ERISA-covered pension plan from offsetting a participant's accrued benefits
against amounts owed to the plan due to the participant's breach of fiduciary
duty. It would also amend ERISA section 502(l) to provide the Secretary of
Labor with discretion to reduce the 20 percent penalty that otherwise applies
to amounts recovered after breaches of fiduciary duty. Without this change,
parties have a disincentive to voluntarily settle when the Secretary of Labor
finds violations because current law triggers the 20 percent penalty.
- ELIMINATE CERTAIN GOVERNMENT REPORTING REQUIREMENTS: Under
ERISA, each administrator of an employee benefit plan is generally required to
produce a summary plan description (SPD) and a summary of any material
modifications (SMM). The SPDs and SMMs must be provided to participants and
beneficiaries, and filed with the Department of Labor. This provision would
eliminate filing of SPDs and SMMs with the government and would authorize the
Labor Department to obtain these documents from plan administrators when needed
to respond to participant requests or to monitor compliance with the SPD and
SMM requirements. Failure to timely furnish documents is now subject to a civil
penalty of up to $100 per day (with a maximum of $1,000 per refusal).
- EXPAND PENSION BENEFIT GUARANTY CORPORATION'S PROGRAM TO LOCATE
MISSING BENEFICIARIES: The draft bill would expand the PBGC's existing
"Missing Participant" program, which locates individuals owed benefits under
defined benefit plans when they terminate, to cover defined contribution plans
and multiemployer defined benefit plans as well. Under the legislation, plan
administrators could either transfer the benefits of any missing participant to
the PBGC or purchase an annuity from an insurer to satisfy the benefit
liability. This would provide workers with a central repository for locating
their benefits after a plan has been terminated.
- INCREASE MULTIEMPLOYER PLAN BENEFIT GUARANTEE: This provision
would increase the maximum benefit guaranteed by the PBGC when multiemployer
plans become insolvent. The benefit guarantee level has remained unchanged
since 1980. For a retiree with 30 years of service, the maximum guaranteed
annual benefit is $5,850. With this guarantee, only one percent of retirees in
an insolvent plan receive full benefits. The proposed change would increase the
maximum annual guarantee for a retiree with 30 years of service to $12,870,
which would result in full benefits for 75 percent of retirees.
- PROVIDE ANNUAL REVERSION REPORT: Under present law, employers
that terminate defined benefit pension plans covered by the PBGC must report
the termination to the PBGC and notify plan participants of their benefits. The
proposal would require the Secretary of Labor, as Chairman of the PBGC, to
report on reversion activity annually to the President and the Congress.
- MODIFY FULL-FUNDING LIMIT FOR MULTI EMPLOYER PLANS: This
provision would remove the current cap on employers' deductions for
contributions to fully funded multiemployer defined benefit pension plans. In
addition, actuarial valuations would be required every three years for
multiemployer plans, instead of every year as under current law.
- MODIFY PENALTY FOR PROHIBITED TRANSACTIONS: Unless exempt,
certain prohibited transactions under ERISA give rise to a civil penalty of
five percent of the amount involved in the transaction. If the transaction is
not corrected, an additional 100 percent civil penalty may be imposed. A
parallel excise tax applies to prohibited transactions involving tax-qualified
pension plans. However, the five percent amount was increased to 10 percent
under the Small Business Job Protection Act of 1996. The draft bill would make
a similar penalty increase to 10 percent to the first-tier penalty under title
I of ERISA to help discourage prohibited transactions.
- PROVIDE DEFERRED ANNUITIES FOR SURVIVING SPOUSES: The proposal
would provide the same annuity protection to surviving or former spouses of
employees covered under the Civil Service Retirement System as now provided to
those covered by the Federal Employees' Retirement System.
- PROVIDE LUMP-SUM PAYMENTS FOR FORMER SPOUSES: Under this
proposal, the designation of funds to a former spouse would be guaranteed.
- STIPULATE RAILROAD RETIREMENT BENEFIT EQUITY: This subtitle
would provide more equitable benefits to beneficiaries of railroad retirement
by conforming their treatment under the Railroad Retirement Act to the
treatment they would receive if covered by the Social Security Act.
Archived News Release--Caution:
information may be out of date.
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