Some suggest Congress should pass a pension reform bill as a retirement present for Rep. J.J. Pickle and Sen. Howard Metzenbaum, two legislators who have been involved in pension reform through much of their congressional careers.
That might be a nice tribute to the two men, but it might be poison for the private pension system. The danger is that any reform bill passed as a tribute to these two men will strangle the private pension system with more rules and regulations, rather than strengthen it.
In fact, virtually every law passed by Congress that has affected the private pension system since the passage of the Employee Retirement Income Security Act of 1974 has weakened the system. The laws have increased the cost of maintaining a pension plan, and increased the bureaucratic burden.
True, many of these laws were not "pension reform" laws. Many were, instead, revenue raising measures. But give Congress an opening and it seems to complicate life, rather than simplify it.
So our preference would be for Congress to leave the private pension system alone. The system is in the process of adapting to the current rules, with difficulty. This is reflected in the change of emphasis from defined benefit to defined contribution plans.
Given that Congress rarely resists the temptation to try to fix something that isn't broken, what really needs to be fixed to make the private pension system function better?
Before that can be answered, several other questions need to be answered.
What is the purpose of the private pension system?
The purpose of the private pension system is to encourage employers and employees to cooperate in saving during an employee's working life a sufficient amount for the employee not to be a burden on society or family during retirement.
In addition, the pool of savings provides resources that can be invested productively in the economy, increasing the nation's wealth.
What needs to be done to encourage employers and employees to cooperate in this way, and is this being done?
Both employers and employees need a nudge from the government, a fact recognized when pension fund contributions were made non-taxable to the employee, and pension investment returns were also made non-taxable.
If the government has decided it is in its interest to encourage private pension plans to supplement Social Security, what rules should it impose to ensure the employers and employees keep their parts of the bargain?
It should set simple, consistent vesting, funding, anti-discrimination and prudence rules and get out of the way. Congress put into place the framework that was needed when it passed ERISA.
But Congress has continued to tinker with those rules almost every other year on the pretext of correcting problems.
To answer the first question: What needs to be fixed?
Very little - only the overwhelming, smothering regulation of the nation's pension plans. ERISA was not simple, but the rules passed since then have become more and more complex. Let's get back to the basics of ERISA.
Undo many of the pettifogging regulations passed since ERISA was passed 20 years ago.
Simplify, simplify, simplify. Then get out of the way.