A bipartisan bill was introduced Wednesday to amend non-discrimination rules for frozen defined benefit plans to protect the benefits of older, longer-serving workers.
Sens. Rob Portman, R-Ohio, and Ben Cardin, D-Md., both members of the Senate Finance Committee, introduced the Retirement Security Preservation Act of 2019 as a standalone bill. It is also included in the Setting Every Community Up for Retirement Enhancement Act of 2019, known as the SECURE Act, which overwhelmingly passed the House in May and is under consideration in the Senate.
Under current law, IRS regulations force some employers with closed pension plans to freeze them to avoid running afoul of non-discrimination testing rules that become harder each year to pass, as participants in closed plans get older and more highly compensated. As a result of failing the test, a plan is frozen and plan participants stop accruing benefits. The senators' bill and the SECURE Act eases those non-discrimination testing rules and rules for make-whole contributions to defined contribution plans, with certain conditions.
"By pulling this issue out of the larger bills circulating on retirement plan reform in general, hopefully this means a quicker resolution to this issue," said Joy M. Napier-Joyce, a Baltimore-based employee benefits attorney at Jackson Lewis PC, referencing the SECURE Act and the Retirement Enhancement Savings Act of 2019.
At least 450,000 Americans are at risk of losing future pension benefits this year if a solution is not reached soon, according to the most recent estimate from the American Benefits Council.
"Many companies have waited before eliminating future accruals in hopes that Congress would address the problem, but will have to make decisions about the future of their plans in the very near term," said Lynn Dudley, senior vice president for global retirement and compensation policy at the American Benefits Council, in a statement. "It is long past time to address this issue. The American Benefits Council strongly supports this legislation and is grateful for the leadership of the senators over many years and their thoughtful, balanced and practical measure to protect retirement security."
Introducing the legislation as a standalone bill is intended to "send a message about its urgency," Mr. Portman said in a news release. "Older workers in these affected closed defined plans deserve relief before it's too late."
Mr. Cardin echoed a similar point. "While I maintain my belief that the Senate should pass the SECURE Act now, we have an obligation to act immediately to prevent a further loss of benefits for workers affected by this provision," he said in the news release. "Congress must act immediately to give workers, especially those closer to retirement, the certainty they need to make decisions and plan their lives — be it passing the SECURE Act or passing this standalone bill."
As the Senate heads into August recess, the SECURE Act remains in limbo. Three Republican senators — Mike Lee of Utah, Ted Cruz of Texas, and Pat Toomey of Pennsylvania — each have holds on the bill, blocking its passage via unanimous consent, sources said. Bill proponents are hoping it gets attached to a piece of must-pass legislation, like a spending bill, when the Senate returns in September.
Kent Mason, a partner with law firm Davis & Harman LLP in Washington, said the bill addresses a critical issue that needs to be addressed. "In light of the 417-3 vote in the House earlier this year, and the urgency of this and other SECURE Act provisions, there is no reason not to pass the SECURE Act in September," he said.
Mr. Portman and Mr. Cardin have teamed up on retirement legislation multiple times. Most recently, in May they introduced the Retirement Security and Savings Act of 2019, which features more than 50 provisions aimed at improving coverage with small employers and among part-time workers.