WASHINGTON - Sen. Edward M. Kennedy's proposal to make employees trustees of defined contribution plans could kill such plans, opponents say.
"There would be a serious disincentive for employers to continue to maintain a 401(k) or any defined contribution plan," said Mark Ugoretz, president of the ERISA Industry Committee, Washington. "It is totally inconsistent with the way benefit plans need to be managed."
Right now, Mr. Kennedy's bill, S. 1992, is in the committee the Massachusetts Democrat chairs, the Senate Committee on Health, Education, Labor and Pensions. The bill's main focus is on limiting employers to either a company stock match or a company stock investment option - but not both unless the company also has a defined benefit plan. Insiders expect the bill will be reported out of committee this week, but are unsure whether it is on the fast track to the Senate floor.
While some congressional handicappers predict the joint-trusteeship measure might be dropped by the time the bill reaches the full Senate, they acknowledge this is far from a sure thing.
"There's a strong desire to get it to the Senate floor. Both parties would like to see the issue dealt with," said James. A. Klein, president of the American Benefits Council, Washington.
The joint trusteeship provision has been a cornerstone of a retirement security and corporate governance proposal the AFL-CIO has been pushing since February. Other supporters would like it included as part of set of stronger remedies - including monetary damages for fiduciary violations - not now available under the Employee Retirement Income Security Act.
Reasoned decisions
Joint trusteeship would give "workers real voice and real choice," and ensures their active participation in overall plan management, providing them with the information they need to make reasoned decisions," the AFL-CIO proposal states.
"We think it's a solid idea and it's a step toward protecting against conflicts of interests," said Karen Friedman, director of policy strategies with the Pension Rights Center, Washington.
If employees helped run the Enron Corp. 401(k) plan, some of the alleged abuses might have been prevented, Ms. Friedman said.
But one of the lawyers representing Enron 401(k) participants doesn't think so.
"The employees on the committee would have been co-opted and would have gone along with anything their employers would have wanted them to do," said Eli Gottesdiener, partner with the Gottesdiener Law Firm, Washington. "What really needs to be done is the ERISA remedies need to be strengthened. To the extent there is no provision overhauling the remedial scheme, (any proposal is) a defeat for pension reform."
For many Washington insiders, the issue of joint trusteeship is dej... vu. In the late 1980s and early 1990s, two legislative proposals were floated that would have required joint trusteeship for all single employer retirement plans. One proposal by Rep. Peter Visclosky, D-Ind., was included as part of a House budget bill, but the amendment was stripped out on the House floor.
"It's a fundamentally flawed idea whose time has passed," Mr. Ugoretz said.
Defined contribution plans "are voluntary plans (for which) many of the decisions are purely in the realm of the employer," he said. Mr. Kennedy's bill "would set up an employee election process in the company without a stated process to conduct an (trustee) election. It would set the employer up as a mini-NLRB (National Labor Relations Board)."
A greater voice
In addition to including employees in the defined contribution plan's administrative committee, the bill proposes to give employees a greater voice in their retirement plans by permitting workers to vote the company stock held in their 401(k) plan accounts.
"Why would an employer want to get into all of that?" Mr. Ugoretz asked. "It's simply unworkable."
Besides, defined contribution plans already have employee input, said the American Benefit Council's Mr. Klein.
"Employers decide the match, if any, and employees can decide how to invest the money," Mr. Klein said. "If you want a multi-trustee plan put together a multi-employer plan. It does not fit the way defined contribution plans exist."
"We don't think it's a good idea," said David Wray, president of the Profit Sharing/401(k) Council of America, Chicago. "The defined contribution system relies on the fact that you have employer experts in the program. That's the core of the system. Typical employees are not qualified to make those decisions."
Most employees would not want to be fiduciaries and so, from a strategic point of view, it doesn't make sense, Mr. Wray said.
Another problem is the bill gives plan trustees more fiduciary responsibility, Mr. Klein said. The Kennedy bill would amend ERISA to allow the plan and participants to seek remedies from executives who mislead or harm workers' retirement security.
"Under the current fiduciary standards, I think you could find an employee who would be a trustee," he said. "Under the changes (in the Kennedy bill) it would be harder to find an employee or an employer who would want to serve."
The proposal is "bad policy," Mr. Klein said.
However, he doesn't expect all plan sponsors to immediately dump their defined contribution plans should the Kennedy bill be passed.
"It's sort of the same way I answer the question if Congress passes a percentage cap on company stock," Mr. Klein said. "Some will suck it up and deal with the provision ... for others, it will be the straw that breaks the camel's back."
Not far enough
But some employee groups, ERISA lawyers and industry insiders do not think the Kennedy bill goes far enough. They would like Congress to use this opportunity to put some real teeth - in the form of more monetary damages - into ERISA.
"The law should deter wrongdoing in the future," Mr. Gottesdiener said. "That's why there is so much wrongdoing - because in the end, the remedial scheme will let people off the hook."
Currently, defined contribution participants are unsecured creditors in a bankruptcy, getting whatever is left after the secured creditors get paid, he said. Under ERISA, participants cannot sue for wrongs done to the individual participant but can only sue on behalf of the plan as a whole. If successful, the court can order that the plan be made whole, but there is no right to monetary damages for the participants who are harmed, Mr. Gottesdiener explained.
