The U.S. Treasury Department has begun examining whether companies are giving employees accurate information about their pension benefits when they take early retirement.
The Treasury has started collecting information from groups representing employers and pension advisers on the kind of information companies give employees about the relative value of lump sums compared with annuities.
Some companies subsidize annuities in early retirement programs, but those subsidies usually are not available to those who opt to take all of their benefits in cash upfront.
Sen. Tom Harkin, D-Iowa, had pressed the secretaries of Treasury and Labor to check whether companies were telling their workers they could lose thousands of dollars in early retirement benefits if they chose to take their pensions in lump sums, rather than in monthly checks over the course of their retirement.
"By forcing employers to fully disclose the value of payment plans, thousands of workers will not unknowingly lose a large share of the value of their pension by choosing a lump-sum payment rather than a lifelong annuity," Mr. Harkin said in a statement.
Federal pension law requires companies to give employees complete information about the relative value of lump sums and monthly annuities, including early retirement subsidies for annuities.
Treasury Department officials have acknowledged to Mr. Harkin that they intend to examine industry practices, and develop information guidelines for companies to give employees accepting early retirement so that they can evaluate the value of lump sums vs. lifetime pensions.
"We strongly support providing employees with the information they need to make an informed decision," Johnathon Talisman, acting Treasury assistant secretary for tax policy, wrote Mr. Harkin.
IRS eases 401(k) rollover rule if corporate unit sold
With merger and acquisition activity at an all-time high, the IRS has issued a rule making it easier for corporations selling businesses to let their employees take their 401(k) plan money with them.
The Internal Revenue Service on May 5 broadened the conditions under which companies disposing of the assets of a business can distribute 401(k) plan money to the departing employees. IRS rules already permitted companies to give employees their retirement dollars when they sell "all or substantially all" of the assets of a business, or when they dispose of a subsidiary.
The new ruling, which applies only when both the buyer and seller are corporations, allows companies to let employees of a divested business roll over their 401(k) assets into their new employers' retirement plans or into individual retirement accounts, even if the companies sell less than 85% of their assets to other corporations. Selling corporations frequently do not let employees of a divested business pull out their money from 401(k) plans for fear of violating IRS regulations.
Groups representing employers have asked lawmakers for years to scrub this "same-desk rule" so that employers and employees could have truly portable retirement plans.
But James M. Delaplane Jr., vice president of retirement policy at the Washington-based Association of Private Pension and Welfare Plans, said the ruling does not address a lot of problems employers confront, especially in other transactions, such as in joint ventures and contracts.
The IRS is "trying to do some helpful things, but many `same-desk' problems remain unaddressed. Our hope was that they were going to do more," he said.
GAO takes closer look at cash balance plans
The General Accounting Office wants to know everything there is to know about cash-balance pension plans.
At lawmakers' request, the investigative arm of Congress is wading through hundreds of summary plan documents and corporate annual reports, and conducting a sample survey of the nation's 1,000 largest companies to determine how many companies have converted their traditional pension plans into cash balance pension plans. The GAO also wants to see why some companies have turned to cash balance plans while others have stayed with traditional defined benefit plans.
Because cash balance plans usually let workers take their account balances when they resign or retire, the GAO also is studying how much of that retirement money workers might spend instead of rolling it over, said Charles Jesceck, GAO assistant director of retirement income issues.
The investigative body intends to examine the impact of such "leakage" on the nation's private pension system, as well as on the Pension Benefit Guaranty Corp., the federal pension insurance agency.
The GAO also will look at whether cash balance plans tend to discriminate against older workers.
The GAO studies of cash balance plans were requested by Reps. Robert E. Andrews, D-N.J., and Major R. Owens, D-N.Y., both members of the House Education and Workforce Committee; and William J. Coyne, D-Pa., a member of the House Ways and Means Committee. Sen. Charles E. Grassley, R-Iowa, chairman of the Senate Special Committee on Aging, and a co-sponsor of major pension legislation, was the only senator who requested the GAO investigation.