[Congressional Record (Bound Edition), Volume 145 (1999), Part 17]
[Extensions of Remarks]
[Pages 24571-24572]
[From the U.S. Government Publishing Office, www.gpo.gov]



              THE PENSION REDUCTION DISCLOSURE ACT OF 1999

                                 ______
                                 

                         HON. ROBERT T. MATSUI

                             of california

                    in the house of representatives

                       Thursday, October 7, 1999

  Mr. MARSUI. Mr. Speaker, I am pleased to introduce bipartisan 
legislation, developed with my colleague on the Ways and Means 
Committee Mr. Weller and in conjunction with the Administration, which 
will provide increased notice to employees when their employers convert 
their pension plans from traditional defined benefit plans to so-called 
``cash balance'' plans.
  The Pension Reduction Disclosure Act of 1999 revises existing section 
204(h) of ERISA and adds related ERISA and tax provisions providing for 
the following: (1) a basic advance notice must be given for amendments 
that reduce the rate of future benefit accrual in a pension plan; (2) 
an enhanced advance notice must be given when applicable large plans 
are converted to cash balance plans or otherwise amended to reduce the 
rate of future benefit accrual; (3) individuals receiving the enhanced 
notice have the right to receive supporting general plan information, 
such as the plan's benefit formula and actuarial factors; and (4) 
individuals receiving the enhanced notice also have the right to 
receive individual benefit statements relating to the projected effect 
of the amendment on them. In general, the information required to be 
provided under the Act must be written in a manner calculated to be 
reasonably understood by the average plan participant. The Act imposes 
minimum notice and information requirements; employers may choose to 
provide information (in the required notice or otherwise) that is in 
addition to that required under the Act.
  Basic advance notice: Current law requires 15 days' advance notice 
for amendments that reduce the rate of future benefit accrual in a 
pension plan. Pension plans subject to the Act requirements are those 
plans subject to existing section 204(h) of ERISA. The Act increases 
this to 45 days before the effective date. The Act eliminates the 
current law requirement that notice be provided only after the plan 
amendment has been adopted. A plan is not to be treated as failing to 
meet the notice requirements of the Act merely because notice is 
provided before the adoption of the amendment if no modification of the 
amendment occurs before the amendment is adopted that would affect the 
information required to be in the notice. The notice must include the 
effective date and the classes of individuals under the plan to which 
the amendment applies. The notice must state that the amendment 
significantly reduces the rate of future benefit accrual and must 
summarize the important terms of the amendment. For example, in the 
case of a money purchase pension plan in which the rate of future 
contributions for all salaried employees is reduced from 7% of 
compensation to 4% of compensation, the basic notice must state that 
the plan is being amended to significantly reduce the rate of future 
contributions, that the rate of future contributions is being reduced 
from 7% of compensation to 4% of compensation, and that the amendment 
applies to all participants who are salaried employees on or after the 
effective date, which must be specified in the notice.

  Enhanced advance notice: The enhanced advance notice applies to plans 
with at least 100 active participants at the end of the prior plan year 
(this information is on the Form 5500). This notice must provide the 
following additional information concerning the amendment: (1) a more 
detailed description of the plan amendment; (2) illustrative examples; 
(3) supporting information; and (4) individual benefit statements.
  More detailed description. The enhanced notice provided to an 
affected participant must be describe the normal and, if applicable, 
the early retirement benefit formulas under which the participant had 
been earning benefits before the amendment, describe the formulas under 
the plan as amended, and explain the effect of the amendment on the 
participant's normal and early retirement benefits. The enhanced 
notice, like the basic notice, must also state that the amendment is 
expected to significantly reduce the rate of future benefit accrual.
  In addition, the enhanced notice must explicitly disclose any 
``wearaway'' or ``benefit plateau'' or temporary period, expected to 
result from the amendment, during which there are no accruals or only 
minimal accruals. For example, if a large pension plan were amended 
from a traditional defined benefit plan to a cash balance plan through 
an amendment that reduced the rate of future benefit accrual, and the 
amendment provided for the establishment of an opening account balance 
using a formula or factors that resulted in the opening account balance 
being less than certain participants' section 417(e) lump sum value, 
the enhanced notice would have to identify the participants likely to 
experience a temporary cessation of accruals and explain why the 
wearaway occurred (for example, because the opening account balance was 
established using a different interest rate than required by the law to 
value lump sum benefits or because the formula used to establish the 
opening account balance did not take into account early retirement 
subsidies).
  Illustrative examples. The enhanced notice must also include 
illustrative examples showing at representative future dates the 
estimated effect of the amendment on the participants in the examples. 
The illustrative examples will include estimates that provide a 
meaningful comparison of benefits that would be earned under the 
amended plan with benefits that would have been earned assuming the 
plan had not been amended. At a minimum, for a comparison to be 
meaningful, it must show benefits under the old and new formulas in the 
same form and at the same time. Accordingly, a comparison of an 
immediate lump sum under a new cash balance formula

[[Page 24572]]

with an age 65 annuity under the pre-amendment final average pay 
formula would not satisfy the requirement that the comparison be 
meaningful; instead, the comparison must be in a life annuity form or a 
form authorized under Treasury regulations (which may, for example, 
authorize the comparison to be based on a lump sum form provided that 
that form is used for both the old and the new formulas). The notice 
(including the basic notice, but not including the supporting 
information) must be written in a manner reasonable calculated to be 
understood by the average plan participant.
  Representative categories: The examples must be selected in a manner 
that is fully and fairly representative of the various categories of 
adversely affected individuals depending on whether the amendment 
results in similar reductions. While the classes of participants 
identified in the basic notice will generally be able to be determined 
under the plan document (e.g. salaried vs. hourly, Subsidiary A vs. 
Subsidiary B), it is intended that the categories used in the enhanced 
notice be more refined. While the determination of differing categories 
will depend on the plan's formulas before and after the amendment, the 
factors relevant to the determination of the number of categories 
appropriate to illustrate the effects of the amendment may include age, 
service and early or normal retirement eligibility. For example, in the 
case of an amendment that reduces the normal and early retirement 
benefits, employees who are already eligible for early retirement might 
be grouped together in a single category.
  Supporting information required to be made available at time of 
advanced enhanced notice: The supporting information required to be 
made available upon a participant's request will include the factors 
used to convert the cash balance to an annuity, early retirement 
reduction factors, and similar assumptions for benefit projections, but 
the employer will not be required to make available the participant's 
personal information, such as the participant's date of hire, service 
history, or compensation. It is understood that, because the 
information may contain formulas and definitions of plan terms, it may 
not be practical for this information to be presented in a manner that 
can be readily understood by the average plan participant, but this 
information, along with the personal information, should be sufficient 
so that a professional advisor for the participant can perform the 
calculations. It is expected that employers could satisfy these 
requirements by making available appropriate computer programs or other 
appropriate technology, or providing a plan document with necessary 
supplemental schedules of current interest and mortality assumptions.
  Individual benefit statements: Each individual to whom the enhanced 
advance notice has been, or is required to have been, furnished can 
make one request for an individual benefit statement at any time up to 
one year after the effective date of any amendment that requires 
section 204(h) enhanced disclosure. As under current law, no charge may 
be imposed for furnishing the required individual benefit statement. 
Under section 502(c)(2) of ERISA, an administrator is subject to 
liability up to $100 a day if the individual benefit statement is not 
provided within 30 days after the date of the request. In no event is 
the statement required to be provided earlier than 90 days after the 
effective date of the plan amendment. The Secretary of Labor may in her 
discretion determine that the statement may be provided at a later 
date. For example, the Secretary of Labor may determine in a particular 
case or by guidance of general applicability that the statement can be 
provided up to 60 days after the request (or, if later, six months 
after the effective date) in exceptional circumstances. Such 
exceptional circumstances might include, for example, cases in which 
the participant's accrual credit is in part based on periods during 
which the participant has worked for a predecessor or another party 
other than the plan sponsor, and the participant's work history with 
the other party is not readily available.
  However, it is not intended that any such extension of time is to be 
permitted to be used as a pretext for a broad-based delay in delivering 
individual benefit statements that can reasonably be furnished at an 
earlier date.
  Anti-abuse intent: It is intended that the protections of the Act are 
not to be evaded, so that, for example, if a plan seeks to evade the 
enhanced notice requirements by freezing benefits and then resuming 
accruals at a reduced accrual rate, a second enhanced notice would be 
required (taking into account the new accrual rate).
  No inference: The fact that enhanced disclosure is required as to 
certain effects of an amendment on certain classes of participants is 
not intended to imply that the amendment or the plan design change 
effected by the amendment complies with current law.
  Alternative methods of compliance: The Secretary of the Treasury is 
authorized to prescribe alternative or simplified methods of compliance 
with section 204(h) for the enhanced notice and related information, 
including and exemption, from some or all of these requirements, in 
situations not involving a fundamental change in the manner in which 
accruals are calculated where such other methods are adequate to 
reasonably inform applicable individuals of the nature of the 
reductions (such as a complete suspension of accruals under the plan, 
certain uniform reductions in the benefit accrual formula, or an 
incremental change in the period taken into account to determine career 
average or other plan compensation). A fundamental change in the manner 
in which accruals are calculated would not include certain changes in 
the compensation taken into account or a uniform reduction in the 
percentage of compensation on which contributions or accruals are 
based, but would include, for example, a conversion from a traditional 
plan (i.e., a flat dollar benefit, career average pay or final pay 
defined benefit pension plan) to a hybrid pension plan, such as a cash 
balance plan. A simplified or alternative method may also be permitted 
in order to ensure that the Act does not discourage consolidation of an 
individual's plan benefits, for example, if a buyer's plan is involved 
in a merger or consolidation with the seller's plan or if the buyer's 
plan receives a transfer from the seller's plan, the buyer is not 
subject to requirements that would not apply if the buyer's plan had 
not accepted a transfer from the seller's plan.
  The Secretary of the Treasury may also issue guidance under which a 
plan may provide the notice only 15 days before the effective date in 
cases in which a 45-day advance notice would be unduly burdensome 
either because the amendment is contingent on a merger, acquisition, 
disposition or other similar transaction or because 45-day advance 
notice would be impracticable (such as where benefits are being reduced 
as part of a liquidation or reorganization in bankruptcy or insolvency 
proceedings).
  Sanctions: An excise tax applies to a failure to satisfy the notice 
requirements and, in the case of an egregious violation, the individual 
is entitled to the greater of the benefit under the amended plan or the 
plan before the amendment. Except in the case of a multiemployer plan, 
the tax is imposed on the employer. If a plan (other than a 
multiemployer plan) is sponsored by a party other than an employer, it 
is intended that the plan sponsor will be treated as the employer for 
this purpose. An egregious violation includes a situation in which 
there has been no intentional failure to provide notice, but the 
employer fails to take reasonable corrective steps after discovering 
that there was a failure to provide notice to some individuals.
  Effective date exception where information provided within 120 days 
of enactment: The notice and information required under the Act is not 
required to be provided earlier than 120 days after the date of 
enactment of the Act. For example, if a large pension plan is amended 
to reduce benefits effective on the day after the enactment of the Act, 
the amendment could go into effect on the day after the enactment of 
the Act, but the plan could provide the required enhanced notice and 
related information (and also furnish any requested individual benefit 
statements) as late as 120 days after the date of enactment.

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