August 04, 2006

Pensioneers and Plans Win in Pension Reform

Crapoâ??s ERISA Modernization amendment secured in conference report

Washington, DC â?? A major provision, authored by Idaho Senator Mike Crapo, to reduce the regulatory and financial burdens on pension plans and their beneficiaries was included in the pension reform conference report (H.R. 4) passed by the Senate last night. Crapoâ??s amendment package lifts investment restrictions that could result in an increase in retirement income for those who belong to pension plans. The pension reform package, which has already passed the U.S. House, cleared the Senate last night on a vote of 93 to 5; it now goes to the President for his signature. H.R. 4 makes permanent the pension improvements enacted in the Economic Growth Tax Relief Reconciliation Act of 2001, including increased contribution limits for individual retirement accounts (IRAs) and 401(k) plans. In addition, the bill makes permanent the â??Saversâ?? Creditâ?? of up to $2,000, which is set to expire at the end of 2006.Crapo originally secured a scaled-back amendment package as the Pension Security and Transparency Act of 2005 (S. 1783), which passed the U.S. Senate last November, but he worked to expand the code modernization as the bill was debated within a joint House-Senate conference. The expanded reforms provide a much-needed update to the Employee Retirement Security Income Act (ERISA) and Internal Revenue Code by removing the dated prohibitions on several commonplace trading practices. Crapoâ??s amendment allows pension plans to take advantage of changes in the marketplace to diversify investment opportunities, allow trading to be carried out more efficiently and better diversify investment portfolios.Specifically, the provision provides relief for pension plan managers from restrictions on bonding, block trading, electronic trading, foreign exchange transactions, accounting for plan assets, cross-trading, service provider exemptions, and time issues involved in trading. By lifting these restrictions, pension holders will be faced with fewer costs, which often translate into a higher, more secure pension payout.Crapo said, â??The vast majority of pension plans invest in very stable securities; however, with a small portion of assetsâ??generally around 5 percent, many plans pursue more active, skill-based investing; plans should have this choice. While the provisions may sound complex, it really comes down to allowing choice and flexibility; lower costs; and greater efficiency to the market.â??These days, distinct lines of separation between banking, insurance, and the securities markets no longer exist. But the laws that govern pension plans haven't been seriously reformed in 30 years, despite the many changes in the way pension plans invest and in the types of firms that provide services to pension plans. To put it simply, these ERISA rules hinder pension plansâ?? ability to invest in rather commonplace markets using standard trading techniques.â??â??As the lines of separation between banking, insurance, and securities become increasingly intertwined, reform is necessary. By allowing diversification of investment opportunities and more efficient securities transactions we are enhancing returns for the participants in these plans and ensuring pension promises are kept,â?? Crapo concluded. â??ERISA has not been revisited for more than 30 years and I appreciate the leadership of Chairmen Enzi and Grassley and House Majority Leader Boehner in moving this legislation this year. This provision will encourage greater participation by pension plans in the marketplace and provide more secure retirements for regular American citizens.â??# # #